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UPSC Prelims 2021 Paper-1 📅 10 Oct, 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.

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
Result Summary
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UPSC Prelims
2021 • 10 Oct, 2021 • Paper-1
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.
Correct Answer
1, 2 and 4 only
Demand Drivers Analysis: Expansionary monetary policies and fiscal stimulus actively inject capital into the economy. This, coupled with higher purchasing power......
Ref/Book : UPSC Prelims 2021
Ref. Subject Economy
Chapter -
Ref. Topic Macroeconomics
Pg. No -
💡 Analysis & Explanation
Demand Drivers Analysis ▼
Expansionary monetary policies and fiscal stimulus actively inject capital into the economy. This, coupled with higher purchasing power among consumers, directly fuels aggregate demand. When demand outpaces the supply capacity, it results in demand-pull inflation. Thus, points 1, 2, and 4 are correct causes.
Cost and Constraint Variables ▼
Inflation-indexing wages automatically increase salaries in response to price hikes, which primarily triggers a wage-price spiral—a classic source of cost-push inflation rather than an initiating cause of demand-pull. Thus, point 3 is not a primary driver.
Interest Rate Dynamics ▼
Rising interest rates make borrowing expensive and incentivize saving, which serves to cool down spending and restrict aggregate demand. Therefore, this action works against inflation, making point 5 incorrect.
Conclusion ▼
Points 1, 2, and 4 are the precise factors that catalyze demand-pull inflation.
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