UPSC Previous Year Question | Prelims GS | 2021

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. 1, 2 and 4 only
  2. 3, 4 and 5 only
  3. 1, 2, 3 and 5 only
  4. 1, 2, 3, 4 and 5

Answer

Correct Answer

1, 2 and 4 only

Explanation

Demand-pull inflation arises when aggregate demand outruns supply. Expansionary policies, fiscal stimulus and higher purchasing power all raise aggregate demand. Inflation-indexed wages are a cost-push factor, and rising interest rates dampen demand rather than raise it.

Topics: causes of demand-pull inflation, economy, inflation, macroeconomics