With reference to Indian economy, demand-pull inflation can be caused/increased by which of the following? 1. Expansionary policies 2. Fiscal stimulus 3. Inflation-indexing wages 4. Higher purchasing power 5. Rising interest rates Select the correct answer using the code given below.

“• 1. Demand Pull Inflation: Demand-pull inflation occurs when there is an increase in aggregate demand, categorized by the four sectors of the economy: households, private, governments and foreign buyers. When these four sectors concurrently want to purchase more output than the economy can produce, then it leads to increase in prices. This excessive demand, also referred to as "too much money chasing too few goods", usually occurs in an expanding economy. Demand pull inflation may be caused due to over expansion of the money supply, government reducing tax and spending more etc.• 2. Cost Push or Supply Shock Inflation: Cost-push inflation basically means that prices have been "pushed up" by increase in costs of any of the four factors of production (labour, capital, land or entrepreneurship) or there is a supply shortage which allows the producer to raise prices.”

“(a) Demand-Pull Inflation • It is caused by an increase in aggregate demand and consumption due to 'n (i) increased private and government spending, (ii) lower rate of savings by households, (iii) depreciation in local exchange rate, (iv) reduction in taxes and (v) increase in money supply and bank credit. • This leads to increased disposable income in the hands of households, thereby resulting a. in increase in the aggregate demand with no change in aggregate supply”

“• Helps in increasing aggregate demand in the economy thereby resulting in economic growth• Results in increase in debt on Government thereby impacting overall macro-economic stability and may result in ratings downgrade• Increases inflation due to increased money supply• Increased money supply may result in depreciation of rupee which can lead to flight of capital from the country• RBI can be seen as losing control over its monetary policy• As such there is no issue if it is done once in exceptional circumstances but in India the problem is once it is done, then it will lure future governments of an easy route of financing their deficit "Deficit Financing": It generally means that Govt. is having deficit (as expenses are more than receipts) which can be financed from different sources like from market borrowing or borrowing from abroad or there can also be the case that Govt may ask RBI to finance its deficit by printing more money. (So, in deficit financing there can be various options to finance Govt.'s deficit and one of the options could be from RBI by printing cash)”