Question:
Which of the following is a cause of demand-pull inflation?
(1) Increase in direct taxes
(2) Increase in indirect taxes
(3) A sharp increase in the price of oil in the world market
(4) A decrease in government purchases of goods and services
(5) Purchases of government securities by the Central Bank
Correct Answer:
(5)
Answer Explanation:
Purchases of government securities by the Central Bank (Open Market Operations) inject money into the banking system. This increases the money supply, lowering interest rates and boosting aggregate demand, which fuels demand-pull inflation.
Topic: Inflation Year: 2023
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