Inflation

Indian Economy (Easy)

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With reference to Indian economy, demand-pull inflation can be caused/ increased by which of the following?

1. Expansionary policies

2. Fiscal stimulus

3. Inflation-indexing wages

4. Higher purchasing power

5. Rising interest rates

Select the correct answer using the code given below

1, 2 and 4 only

3, 4 and 5 only

1, 2, 3 and 5 only

1, 2, 3, 4 and 5

Explanation:

- Expansionary policies: These increase the money supply and lower interest rates, leading to more spending, thus potentially causing demand-pull inflation.

- Fiscal stimulus: Government spending increases aggregate demand, which can lead to demand-pull inflation.

- Inflation-indexing wages: This automatically increases wages with inflation, putting more money into consumers' hands, potentially increasing demand.

- Higher purchasing power: When individuals have more disposable income, they tend to spend more, pushing up aggregate demand.

- Rising interest rates: Typically cools down inflation by reducing spending and borrowing, not a cause of demand-pull inflation.

The correct answer is:

Option:1, 2 and 4 only