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.

Demand-pull inflation occurs when there is too much money chasing too few goods, leading to an increase in the general price level. This happens when aggregate demand exceeds aggregate supply.

• Statement 1: Expansionary policies: Expansionary fiscal policy (increased government spending or decreased taxes) and expansionary monetary policy (increased money supply through easier credit) increase aggregate demand, thus contributing to demand-pull inflation. Hence, statement 1 is correct.
• Statement 2: Fiscal stimulus: Fiscal stimulus, such as tax rebates and incentives, aims to boost economic activity and job creation. This increases demand, potentially leading to demand-pull inflation. Hence, statement 2 is correct.
• Statement 3: Inflation-indexing wages: Inflation-indexed wages adjust wages to compensate for inflation, maintaining real purchasing power. While they protect workers from inflation's impact, they do not directly cause demand-pull inflation because they primarily maintain existing demand rather than creating new demand. Hence, statement 3 is not correct.
• Statement 4: Higher purchasing power: Increased purchasing power allows consumers to demand more goods and services. This increased demand can contribute to demand-pull inflation. Hence, statement 4 is correct.
• Statement 5: Rising interest rates: Rising interest rates decrease the money supply and make borrowing more expensive. This reduces aggregate demand, and counteracts demand-pull inflation rather than causing it. Hence, statement 5 is not correct.

Therefore, only statements 1, 2, and 4 are correct.