Question

<!--td {border: 1px solid #ccc;}br {mso-data-placement:same-cell;}--> Increase in money supply by increasing government expenditure leads to

• A. Cost Push Inflation
• B. Demand Pull Inflation
• C. Deflation
• D. None of the above

Answer 1

The correct option is B Demand Pull Inflation

<!--td {border: 1px solid #ccc;}br {mso-data-placement:same-cell;}--> Increase in government expenditure is expected to increase demand for goods and services. So it can lead to demand driven inflation.

Cost push inflation is supply side factor, which will not be impacted by increase in Government expenditure.

Deflation is reduction of the general level of prices in an economy. So it is not an outcome of increase in government expenditure.