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. 

(a) 1, 2, and 4 only 

(b) 3, 4 and 5 only 

(c) 1, 2, 3 and 5 only 

(d) 1, 2, 3, 4 and 5 

Answer: a

Explanation: 

Demand-pull inflation /monetary theory of inflation:

The reason for demand-pull inflation is increase in aggregate demand,i.e., aggregate demand cannot be met by current supply.

Aggregate demand is the sum of:  

Consumer spending on goods & services + Government spending on goods and services + Net investment made by entrepreneurs.

According to the monetary theory of inflation, inflation is always, and everywhere, a phenomenon,i.e., an increase in money supply is the cause of inflation.

So, the factors determining demand-side inflation are:

1. Increase in money supply (by decrease in interest rate) 
2. Increase in disposable income.
3. Fiscal stimulus-i.e., government spending more and reducing taxes.
4. Increase in business outlay, i.e., capital expansion.

Hence, option a is correct.

Read: Solved Economy PYQs With Explanation 2021 UPSC Prelims