With reference to Indian economy, demand-pull inflation can be caused/increased by which of the following? 1…
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
Solution
Demand-pull inflation occurs when aggregate demand exceeds supply. Expansionary monetary/fiscal policies, fiscal stimulus and higher purchasing power increase demand and cause demand-pull inflation. Inflation-indexed wages are a response to inflation, and rising interest rates curb demand.