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 answ

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Q: (IAS/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.

question_subject: 

Economics

question_exam: 

IAS

stats: 

0,227,196,298,36,25,64

keywords: 

{'pull inflation': [0, 0, 0, 1], 'inflation': [0, 1, 0, 3], 'indian economy': [0, 3, 3, 5], 'demand': [0, 0, 0, 3], 'interest rates': [0, 1, 0, 3], 'fiscal stimulus': [0, 0, 1, 1], 'higher purchasing power': [0, 0, 0, 1], 'indexing wages': [0, 0, 0, 1], 'expansionary policies': [0, 0, 0, 1]}

The correct answer is 1, 2 and 4 only.

Demand-pull inflation occurs when the aggregate demand in the economy exceeds the available supply of goods and services. This can be caused by expansionary policies and fiscal stimulus, which increase the disposable income of people, leading to higher demand for goods and services. Higher purchasing power also leads to an increase in demand, as people have more money to spend. Inflation-indexing wages can act as a buffer against demand-pull inflation by adjusting wages in line with the inflation rate, but it does not cause or increase demand-pull inflation. Rising interest rates have a dampening effect on demand, as they increase the cost of borrowing, leading to lower consumer spending, and hence do not cause demand-pull inflation.