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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
(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:
- a)1, 2 and 4 only
- b)3, 4 and 5 only
- c)1, 2, 3 and 5 only
- d)1, 2, 3, 4 and 5
Correct answer is option 'D'. Can you explain this answer?
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Verified Answer
With reference to Indian economy, demand-pull inflation can be caused/...
Expansionary policies – Expansionary policies lead to more economic activity via low interest rates, more money with public etc which can lead to demand-pull inflation.
Fiscal stimulus – Fiscal stimulus means expansionary fiscal policy, which includes increased government consumption or lowering of taxes. Both will ultimately lead to more money in the hands on public, thereby driving up the demand leading to demand-pull inflation.
Inflation – indexed wages – Wages indexed to inflation will adjust with time leading to more money in the hands of working class during periods of growth, due to which they end up spending more in times of inflation, thereby contributing to demand-pull inflation
Higher purchasing power – Higher purchasing power means more money in the hands of public, who will demand whatever is being provided by the market & more, thereby leading to demand-pull inflation.
Rising interest rates – high interest rates lead to contraction in borrowing & spending activity, thereby leading to contraction in inflation. However, rising interest rate leads people to believe that inflation is going to rise in future, thereby increasing the demand of goods in present time. This perception leads to demand-pull inflation.
Therefore, the correct answer is (d).
Most Upvoted Answer
With reference to Indian economy, demand-pull inflation can be caused/...
Demand-pull inflation refers to a situation where the demand for goods and services is greater than the supply, leading to an increase in prices. This can be caused or increased by various factors in the Indian economy, which are:
Expansionary policies:
When the government implements expansionary policies like increasing government spending, lowering taxes, or increasing subsidies, it leads to an increase in demand for goods and services. This, in turn, can lead to demand-pull inflation.
Fiscal stimulus:
Fiscal stimulus refers to measures taken by the government to increase spending and boost economic growth. This can include measures like increasing infrastructure spending or providing subsidies to certain industries. However, if the fiscal stimulus is too large, it can lead to an increase in demand and inflation.
Inflation-indexing wages:
When wages are indexed to inflation, it means that they are automatically adjusted to keep up with the rising cost of living. While this can be beneficial for workers, it can also lead to an increase in demand and higher prices.
Higher purchasing power:
When consumers have more money to spend, they tend to spend more, leading to an increase in demand for goods and services. This can happen when there is an increase in income, wealth, or credit availability.
Rising interest rates:
When interest rates rise, it becomes more expensive to borrow money. This can reduce demand for goods and services, but it can also increase the cost of production for businesses. If businesses pass on these costs to consumers in the form of higher prices, it can lead to demand-pull inflation.
Therefore, all of the above factors can cause or increase demand-pull inflation in the Indian economy. Thus, the correct answer is option D, i.e., 1, 2, 3, 4, and 5.
Expansionary policies:
When the government implements expansionary policies like increasing government spending, lowering taxes, or increasing subsidies, it leads to an increase in demand for goods and services. This, in turn, can lead to demand-pull inflation.
Fiscal stimulus:
Fiscal stimulus refers to measures taken by the government to increase spending and boost economic growth. This can include measures like increasing infrastructure spending or providing subsidies to certain industries. However, if the fiscal stimulus is too large, it can lead to an increase in demand and inflation.
Inflation-indexing wages:
When wages are indexed to inflation, it means that they are automatically adjusted to keep up with the rising cost of living. While this can be beneficial for workers, it can also lead to an increase in demand and higher prices.
Higher purchasing power:
When consumers have more money to spend, they tend to spend more, leading to an increase in demand for goods and services. This can happen when there is an increase in income, wealth, or credit availability.
Rising interest rates:
When interest rates rise, it becomes more expensive to borrow money. This can reduce demand for goods and services, but it can also increase the cost of production for businesses. If businesses pass on these costs to consumers in the form of higher prices, it can lead to demand-pull inflation.
Therefore, all of the above factors can cause or increase demand-pull inflation in the Indian economy. Thus, the correct answer is option D, i.e., 1, 2, 3, 4, and 5.
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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 ratesSelect the correct answer using the code given below:a)1, 2 and 4 onlyb)3, 4 and 5 onlyc)1, 2, 3 and 5 onlyd)1, 2, 3, 4 and 5Correct answer is option 'D'. Can you explain this answer?
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