One of the following function is performed by the government it if intervenes either to expand demand or to reduce it. Select the correct answer.

Stabilisation function

The correct answer is option (3) : Stabilisation function

Stabilisation Function of Government Budget: The government may need to correct fluctuations in income and employment. The overall level of employment and prices in the economy depends upon the level of aggregate demand which depends on the spending decisions of millions of private economic agents apart from the government. These decisions, in turn, depend on many factors such as income and credit availability. In any period, the level of demand may not be sufficient for full utilisation of labour and other resources of the economy. Since wages and prices do not fall below a level, employment cannot be brought back to the earlier level automatically. The government needs to intervene to raise the aggregate demand. On the other hand, there may be times when demand exceeds available output under conditions of high employment and thus may give rise to inflation. In such situations, restrictive conditions may be needed to reduce demand. The intervention of the government whether to expand demand or reduce it constitutes the stabilisation function.

Here's why the other options are not the primary focus of intervention to expand or reduce demand:

Allocation function: This refers to the government's role in allocating resources where the market might fail. It's not directly related to influencing overall demand in the economy.
Redistribution function: This focuses on transferring resources from wealthier sections to poorer sections of society. While it can affect demand patterns, it's not the primary objective of demand management.
Public provision: This refers to the government's role in providing essential goods and services that the private sector might not deliver efficiently. While it can influence demand for those specific goods and services, it's not a broad-based intervention to manage aggregate demand.