What is the reason behind calling a function of budget as "Re-Distribution function"?
Answer & explanation
Correct answer: option 2
The correct answer is option 2: Alters the income distribution to make fair distribution
The total national income of the country goes to either the private sector, that is, firms and households (known as private income) or the government (known as public income). Out of private income, what finally reaches the households is known as personal income and the amount that can be spent is the personal disposable income. 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.