Which of the following statement/statements are true?
Statement 1: The deficit decreases in a recession and increases in a boom, even without any change in fiscal policy.
Statement 2: The three functions of allocation, redistribution, and stabilization are operated through the expenditure and receipts of the government

Statement 2 is true and Statement 1 is false

The three functions of allocation, redistribution, and stabilization are operated through the budget i.e. the expenditure and receipts of the government. The deficit increases in a recession and decreases in a boom and there are changes in the fiscal policy. Deficit increases in recession because during such a time, government needs to revive the economy. For this to happen, it has to incur more expenditure to create more jobs and increase demand for goods and services, which eventually results in widening the gap between expenditure and receipts i.e. increases the deficit.