The correct answer is Increase in expenditure on public projects.

• An economic recession is typically defined as a decline in the gross domestic product (GDP) for two or more consecutive quarters. 
• High-interest rates are a cause of recession because they limit liquidity, or the amount of money available to invest. Hence statements 1 and 3 are not correct
• Inflation refers to a general rise in the prices of goods and services over a period of time. As inflation increases, the percentage of goods and services that can be purchased with the same amount of money decreases.
• An increase in public expenditure rises GDP by the same amount, other things equal.
• Moreover, since income is an important determinant of consumption, that increase in income will be followed by a rise in consumption.
• Public expenditure plays four main roles:
  • It contributes to current effective demand;
  • It expresses a coordinated impulse on the economy, which can be used for stabilization, business cycle inversion, and growth purposes;
  • It increases the public endowment of goods for everybody;
  • It gives rise to positive externalities to the economy and society as a whole (or in specific sectors and geographical areas), the more so through its capital component. Hence statement 2 is correct.