The intervention of the government, whether to expand demand or reduce it, constitutes the _____ function.
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Stabilisation
The stabilisation function of the government refers to its role in maintaining economic stability — that is, controlling inflation, reducing unemployment, and ensuring steady growth. When the government intervenes to expand demand (during recession) or reduce demand (during inflation), it uses fiscal and monetary policies to stabilise the economy.