Q. With reference to the Stabilisation Function of the Government Budget, consider the following statements:
1.The stabilisation function aims to correct fluctuations in income, employment, and prices by influencing aggregate demand in the economy.
2.During periods of low demand and underutilization of resources, the government may intervene to reduce aggregate demand through restrictive fiscal measures.
3.In situations of excessive demand and inflation, the government can adopt policies to contract demand and stabilise prices.
Which of the statements given above is/are correct?
Answer: B
Notes:
Explanation:
- The stabilisation function refers to the government’s role in maintaining economic stability by correcting fluctuations in income, employment, and prices, typically through fiscal policy measures that influence aggregate demand.
- During low demand and underutilisation, the government does not reduce aggregate demand. Instead, it adopts expansionary fiscal policy (e.g., increased spending or tax cuts) to raise aggregate demand and stimulate employment.
- When demand exceeds output and inflation arises, the government may implement restrictive (contractionary) measures like reducing public expenditure or increasing taxes to curb excess demand and bring stability.
Source: Indian Economy (NCERT)
