Question

Q. With reference to the demand-pull inflation, which of the following causes is/are correct?

Select the correct answer using the code given below:

• A. 1, 2, 3, 4 and 7
• B. 3, 4, 5, 6 and 7
• C. 1, 3, 5 and 6
• D. 1, 2, 3, 4, 5, 6 and 7

Answer 1

The correct option is C 1, 3, 5 and 6

Explanation:

Causes for Cost-push inflation are:

• Infrastructural surcharges
• Increase in indirect taxes
• Increase in prices of raw materials
• Supply shocks
• Rise in administered prices
• Rise in imported inputs

Cause for Demand-pull inflation are:

• Increasing government expenditure
• Increasing money supply (liberal monetary/fiscal policy)
• Parallel economy/black money
• Increasing forex reserves (As foreign currency reserves rise demand for rupee goes up and that creates inflation.)
• Rising population
• Rise in income and wages
• Climatic changes
• Specific consumer preferences