Correct Option
The correct option is 1 and 3 only.
Explanation
In macroeconomics, the State or Government is a distinct economic agent, separate from households and firms. Its role extends beyond mere administration to include economic regulation, the provision of public goods, and active participation in the production process, particularly in mixed economies.
Statement-wise Analysis
- Statement 1 is Correct: A primary function of the State is to establish the institutional framework necessary for an economy to operate. This includes framing laws, enforcing property rights, and delivering justice to ensure that economic transactions can occur smoothly and disputes are resolved.
- Statement 2 is Incorrect: The State is not constitutionally barred from undertaking production activities. In a mixed economy like India, the government actively participates in production through Public Sector Undertakings (PSUs) and produces goods and services that the private sector may not supply efficiently (e.g., defense, railways, strategic industries).
- Statement 3 is Correct: The State plays a vital developmental role by incurring public expenditure. It invests in physical infrastructure (roads, bridges, power) and social infrastructure (health, education) to enhance economic capacity and social welfare.
Key Takeaway
Key Takeaway: The State acts as both a regulator (enforcing laws) and a provider (producing public goods and infrastructure), and is not restricted solely to administrative functions.