How does the budget combat the situations of "Deflation" in the economy?

Increase expenditure 

The correct answer is Option 1: Increase expenditure

Deflation is a situation where the aggregate demand is less in the economy.

In a situation of deflation, the government typically increases public expenditure to boost demand in the economy. By spending more on infrastructure, social programs, and other public services, the government injects money into the economy, stimulating consumption and investment, which helps counter deflationary pressures.

If the government increases its revenue it would lead to contraction of money from economy thus not recommended. The ideal situation is increase in expenditure and decrease in revenue.