Which of the following is a merit of internal source of recruitment?

Both 1 and 2

The correct answer is option 4- Both 1 and 2.

Wider choice is a merit of External source of recruitment.
Filling vacancies in higher jobs from within the organisation has the following merits:
(i) Employees are motivated to improve their performance. 
(ii) Internal recruitment also simplifies the process of selection and placement. The candidates that are already working in the enterprise can be evaluated more accurately and economically. This is a more reliable way of recruitment since the candidates are already known to the organisation.
(iii) Transfer is a tool of training the employees to prepare them for higher jobs. Also people recruited from within the organisation do not need induction training.