Question

What is a fiscal measure of correcting deficient demand?

• A. Decrease in public debt
• B. Deficit financing
• C. Increase in public expenditure and decrease in taxes
• D. All of these

Hint:

Fiscal policy measures such as increasing government spending and reducing taxes are commonly used to stimulate demand and correct deficient demand in the economy.

Answer 1

The Correct Option is D

Step 1: Understanding Deficient Demand:
Deficient demand refers to a situation where the aggregate demand in an economy is insufficient to purchase the total output produced at the existing level of income and employment. To address this, fiscal measures are often used.
Step 2: Fiscal Measures to Correct Deficient Demand:
- Option (A): Decreasing public debt can help reduce the burden on the government, but it does not directly increase demand.
- Option (B): Deficit financing involves the government borrowing or printing money to fund increased expenditure. It is used to stimulate demand.
- Option (C): Increasing public expenditure and decreasing taxes can directly boost aggregate demand by increasing government spending and providing consumers with more disposable income.
Step 3: Conclusion:
All of these measures—deficit financing, increasing public expenditure, and reducing taxes—are fiscal tools used to correct deficient demand. Thus, option (D) is the correct answer.