For the purpose of restoring equilibrium in an economy currently operating at over full employment equilibrium, what should be done?

Government expenditure must be reduced

The correct answer is Option (3) → Government expenditure must be reduced

When an economy is operating at over full employment equilibrium, it means that resources are being utilized beyond their sustainable capacity, which can lead to inflationary pressures. By decreasing government spending, the overall demand in the economy can be lowered, which helps to bring down inflation and restore equilibrium.

Repo rate must be reduced: A reduction in the repo rate makes borrowing cheaper, which could encourage spending and investment, further increasing demand and potentially worsening inflation.

Securities must be purchased by the central bank of the country: This action usually aims to increase liquidity in the economy, which could also raise demand and inflation, making it inappropriate in a situation of over full employment.

Taxes must be reduced: Reducing taxes would typically increase disposable income for consumers, leading to higher consumption and potentially exacerbating the inflationary pressure, which is counterproductive in an over full employment scenario.