Which of the following measures can be taken under fiscal policy to solve the problem of deficient demand in the economy?

Option 1 -> Increase repo rate is a monetary policy tool, not fiscal policy. It would actually contract demand.

Option 2 -> Increase public spending is a fiscal policy measure that directly increases aggregate demand in the economy.

Option 3 -> Decrease cash reserve ratio is a monetary policy tool controlled by the central bank, not fiscal policy.

Option 4 -> Decrease reverse repo rate is a monetary policy tool controlled by the central bank, not fiscal policy.

Hence, Option 2: Increase public spending -> Fiscal policy involves government decisions on spending and taxation. To combat deficient demand (when aggregate demand is less than aggregate supply at full employment), the government can increase its expenditure on infrastructure, social programs, subsidies, etc. This directly injects money into the economy, increases income and employment, and stimulates overall demand. Options 1, 3, and 4 are all monetary policy tools managed by the central bank, not fiscal policy measures -> correct