Question

Q. With reference to the demand pull inflation, consider the following statements:

Which of the above given statements is/are correct?

• A.
  1 only
• B.
  1 and 2 only
• C.
  2 and 3 only
• D.
  1, 2, and 3

Answer 1

The correct option is A

1 only
Explanation:

Statement 1 is correct: Demand Pull Inflation is caused by mismatch in demand and supply i.e. Too many dollars chasing too few goods.

Statement 2 is incorrect: Increased government expenditure will increase liquidity in the market and it will further increase the demand pull inflation (Not decrease).

Statement 3 is incorrect: If the government is opting liberal fiscal policy then there will be high liquidity in the market which in turn will raise the level of demand pull inflation.