Question

Which of the following is / are responsible for Demand Pull Inflation?

• A. Black Money
• B. Increasing government expenditure
• C. Both a and b
• D. Neither a or b

Answer 1

The correct option is C Both a and b

Demand-pull inflation refers to increase in prices of goods and services that arises due to increase in the demand for a product. Increase in government expenditure leads to more money in the hands of people. Eg subsidies, MGNREGA spending. This will lead to increase in demand for the goods in the market, leading to inflation.

Spending of black money leads to higher demand for goods and can thus lead to rise in prices of goods and services.