ECONOMICS
INFLATION
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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An increase in costs
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A reduction in interest rates
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A reduction in government spending
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An outward shift in aggregate supply
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Detailed explanation-1: -Increased borrowing. Due to fiscal stimulus-It includes increased government consumption or lowering of taxes. Hence 2 is correct. When the government spends more freely, prices go up.
Detailed explanation-2: -Causes of demand-pull inflation Lower interest rates. A cut in interest rates causes a rise in consumer spending and higher investment. This boost to demand causes a rise in AD and inflationary pressures. The rise in house prices.
Detailed explanation-3: -Demand-pull inflation can be caused by an expanding economy, increased government spending, or overseas growth.
Detailed explanation-4: -For example, a central bank might increase interest rates to counter demand-pull inflation, leading consumers to spend less on housing and products. This in turn lowers demand, allowing producers to catch up with supply and restoring balance. Governments can also reduce government spending or raise taxes.