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Question No. 110Interactive Test Mode
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Q110. With reference to the 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.

With reference to the 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.

Select the correct option below (or cross out options to eliminate)

Official Answer Key & Detailed Solution

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Click any option above to test yourself under exam conditions, or reveal the explanation directly.

Official UPSC Answer KeyUPSC Prelims 2021 • Indian Economy

Correct Answer: Option (A) — 1, 2 and 4 only

Concept & Option Breakdown

Standard Reference Verified

• Demand-pull inflation occurs when aggregate demand exceeds aggregate supply ('too much money chasing too few goods'). • Statement 1 is correct: Expansionary monetary and fiscal policies increase money supply and aggregate demand. • Statement 2 is correct: Fiscal stimulus directly injects purchasing power and boosts government and private consumption. • Statement 3 is incorrect: Inflation-indexing wages adjusts nominal wages to keep real wages constant; it is a compensatory mechanism rather than an initial driver of demand-pull inflation. • Statement 4 is correct: Higher disposable income and purchasing power increase consumer demand. • Statement 5 is incorrect: Rising interest rates make borrowing expensive and encourage saving, thereby dampening aggregate demand.

Elimination Heuristic & Exam Approach

Eliminate Statement 5 immediately: Higher interest rates are a contractionary tool used to curb inflation, not cause it. Eliminating (b), (c), and (d) leaves (a) directly.

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Question Specifications & Syllabus Mapping

Examination & YearUPSC Civil Services Preliminary Examination 2021 (Q110)
Paper & Marking SchemeGS Paper I • 2 Marks (-0.66 Negative for incorrect response)
Syllabus Subject & TopicIndian Economy → Banking & Financial System
Official Answer KeyOption (A) — 1, 2 and 4 only

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Frequently Asked Questions — UPSC Prelims 2021 Q110

What is the official answer for UPSC Prelims 2021 GS Paper I Question 110 (Indian Economy)?

The official UPSC answer key for this 2021 Indian Economy (Banking & Financial System) question is Option (A): "1, 2 and 4 only". Correct attempts carry 2 Marks with -0.66 Negative penalty for wrong answers.

Which UPSC Prelims syllabus topic does this 2021 question belong to?

This question belongs to GS Paper I under the subject "Indian Economy" and micro-topic "Banking & Financial System". You can explore all repeated questions from Banking & Financial System in Acme AI's 3D Prelims PYQ Realm or practice 50 full-length and sectional tests in the APT Prelims Test Series.

How can I solve this Banking & Financial System UPSC Prelims question using option elimination?

Eliminate Statement 5 immediately: Higher interest rates are a contractionary tool used to curb inflation, not cause it. Eliminating (b), (c), and (d) leaves (a) directly.

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