Consider the following factors: A. Deficit financing B. Black money in an economy C. High rate of population growth Which of the factors given above are responsible for the demand-pull inflation in an economy Select the code for the correct answer from the options given below: ?

Option 4 : A, B and C

The correct answer is A, B, and C.

• Demand-pull inflation occurs when aggregate demand for goods and services in an economy increases more rapidly than its production capacity.
  • It occurs when there is a money flow in the market.
• Factors responsible for the demand-pull inflation in an economy are: 
  • A growing economy, when the consumers spend more and take on more debt. This leads to a steady increase in demand, which leads to an increase in prices.
  • Growth in unaccounted money i.e Black money leads to more demand for goods. An expansion of the money supply with too few goods to buy makes prices increase. Hence statement B is correct.
  • The high rate of population growth i.e Increase in population raises the number of consumers in the market which leads to raising in the demand for goods. Hence statement C is correct.
  • Deficit financing is a situation where expenditure is higher than the revenue.
    • When the Government is spending more freely, prices shoot up.
    • Deficit financing will increase the money supply in the market. Hence statement A is correct.