Question

Calssify the following into allocation, distribution and stabilization function of the government.

1. The government increases the defence expenditure. . 

2. The government reduces the subsidies on chemical fertilizers. 

3. The government increases the rate of interest. 

4. The government increases investment. 

5. The government spends on building new roads. 

6. The government increases the income tax.

Answer 1

• 1, 5 allocation function 
• 2, 6 distribution function 
• 3, 4 stabilization function

Allocation function refers to the provision of public goods by the government. Stabilization function refers to the reduction of uctuations in the economy by inuency of the aggregate demand.