Q. 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.
Why this Question) Important static economic concept, current oil, gas prices.
Exp) Option a is correct.
Demand-pull inflation is the upward pressure on prices that follows a shortage in supply, a condition that economists describe as “too many dollars chasing too few goods.”
- Expansionary policies: When the government spends more freely, money in the market is increased. It leads to increase demand for the goods and fuels demand-pull inflation.
- Fiscal Stimulus: It also increases the money in the market leads to increase demand for the goods and fuels demand-pull inflation
- Higher Purchasing Power: When consumers earn higher income, they feel confident and spend more. This leads to more demand and fuels Demand-pull inflation
Inflation-indexing wages and rising interest rates do not increase or cause demand-pull inflation