UPSC CSE Prelims
Question 84
With reference to Indian economy, demand-pull inflation can be caused/increased by which of the following?
- Expansionary policies
- Fiscal stimulus
- Inflation-indexing wages
- Higher purchasing power
- Rising interest rates
Select the correct answer using the code given below.
View correct answer and explanation
Correct answer: A
Correct Option: A (1, 2 and 4 only)
Explanation: Demand-pull inflation results when spending grows faster than available output: expansionary policy, fiscal stimulus and greater purchasing power raise aggregate demand. Higher interest rates generally restrain it.
Statement / Pair / Item-wise Analysis:
1. Correct / qualifies - Expansionary monetary/fiscal policy may stimulate aggregate demand.
2. Correct / qualifies - Fiscal stimulus increases government or household spending power.
3. Incorrect / does not qualify - Inflation-linked wage indexing is more associated with inflation persistence/wage-price effects than a primary demand-pull trigger in this exam.
4. Correct / qualifies - Higher household purchasing power can raise spending demand.
5. Incorrect / does not qualify - Rising interest rates tend to curb borrowing and demand.
Option-wise Analysis:
A. Correct-selects exactly the supported statements/items: 1, 2, 4.
B. Incorrect-includes item 3, which is not valid (Inflation-linked wage indexing is more associated with inflation persistence/wage-price effects than a primary demand-pull trigger in this exam); includes item 5, which is not valid (Rising interest rates tend to curb borrowing and demand); omits valid item 1 (Expansionary monetary/fiscal policy may stimulate aggregate demand); omits valid item 2 (Fiscal stimulus increases government or household spending power).
C. Incorrect-includes item 3, which is not valid (Inflation-linked wage indexing is more associated with inflation persistence/wage-price effects than a primary demand-pull trigger in this exam); includes item 5, which is not valid (Rising interest rates tend to curb borrowing and demand); omits valid item 4 (Higher household purchasing power can raise spending demand).
D. Incorrect-includes item 3, which is not valid (Inflation-linked wage indexing is more associated with inflation persistence/wage-price effects than a primary demand-pull trigger in this exam); includes item 5, which is not valid (Rising interest rates tend to curb borrowing and demand).