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.
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Answer: A. Demand-pull inflation happens when too much money chases too few goods. Expansionary policies, fiscal stimulus and higher purchasing power all raise demand. Inflation-indexed wages push up costs, which is cost-push inflation. Rising interest rates reduce demand. So 1, 2 and 4.
Watch for: Separate demand-side causes from cost-side ones; wage indexation raises costs, not demand.
Why the other options are wrong
- B. Wrong because indexed wages are cost-push and rising rates reduce demand.
- C. Wrong because rising interest rates reduce demand and indexed wages are cost-push.
- D. Wrong because rising interest rates reduce demand.
Source to check: RBI Monetary Policy Report; NCERT Class 12, Introductory Macroeconomics, Chapter 3 Money and Banking
Answer from the official UPSC key. Written and fact-checked by AI against the official key. Spotted a mistake? Report it.