Match List-I (situation) with List-II (budget response):
| List-I | List-II | ||
|---|---|---|---|
| (A) | Demand is not sufficient for full utilisation of labour and other resources | (I) | Changing personal disposable income through transfers and taxes |
| (B) | Demand exceeds available output under conditions of high employment | (II) | Government provides the goods through the budget |
| (C) | The distribution of income is not considered fair by society | (III) | Government intervenes to raise aggregate demand |
| (D) | The market mechanism cannot provide goods like national defence | (IV) | Restrictive conditions to reduce demand |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A) - (III), (B) - (IV), (C) - (I), (D) - (II)
Each situation calls for one budget function: stabilisation (both ways), redistribution or allocation.
| List-I | List-II | Reason |
|---|---|---|
| (A) Demand is not sufficient for full utilisation of labour and other resources | (III) Government intervenes to raise aggregate demand | Too little demand leaves resources idle, so demand must be raised (stabilisation). |
| (B) Demand exceeds available output under conditions of high employment | (IV) Restrictive conditions to reduce demand | Excess demand causes inflation, so demand must be cut (stabilisation). |
| (C) The distribution of income is not considered fair by society | (I) Changing personal disposable income through transfers and taxes | This is the redistribution function. |
| (D) The market mechanism cannot provide goods like national defence | (II) Government provides the goods through the budget | Defence is a public good, supplied through the allocation function. |
NCERT (2026-27): “Allocation Function of Government Budget Government provides certain goods and services which cannot be provided by the market mechanism i.e. by exchange between individual consumers and producers. Examples of such goods are national defence, roads, government administration etc. which are referred to as public goods. …” “Redistribution Function of Government Budget … The government sector affects the personal disposable income of households by making transfers and collecting taxes. It is through this that the government can change the distribution of income and bring about a distribution that is considered ‘fair’ by society. This is the redistribution function.” “Stabilisation Function of Government Budget … 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. …” |