UPSC Prelims 2021 – Question 72

Here is Question No. 72 a part of our series on UPSC Prelims 2021.

Q72. With reference to the 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.
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

Answer: (a) Exp:

• Demand-Pull Inflation- This type of inflation is caused by an increase in demand and when the demand in the economy outgrows the supply in the economy. This kind of inflation can be described as “too much money chasing too few goods”.
• Expansionary policies: When the government spends more freely, money in the market is increased. It leads to increased demand for goods and fuels demand-pull inflation.
• Fiscal Stimulus: It also increases the money in the market leading to increased demand for the goods and fuels demand-pull inflation
• Higher Purchasing Power: When consumers earn a 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

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