Which of the following measures can be taken under fiscal policy to solve the problem of deficient demand in the economy?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Increase public spending.
A situation of deficient demand occurs when aggregate demand is less than aggregate supply, leading to unemployment and underutilization of resources.
Under fiscal policy, the government can correct this by taking expansionary measures, such as:
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Increasing public expenditure on infrastructure, welfare schemes, etc.
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Reducing taxes to increase disposable income and boost consumption.
The other options — changes in repo rate, cash reserve ratio, or reverse repo rate — are monetary policy measures, not fiscal ones.