Question

Which of the followings are correct in the context of inflation?
(A) Higher aggregate demand may lead to demand-pull inflation.
(B) Higher cost of production may lead to cost-push inflation.
(C) Higher international food and fuel prices may lead to inflation.
(D) Higher indirect taxes and lower subsidy may lead to inflation.

• A. (A), (B) and (D) only
• B. (A), (B) and (C) only
• C. (A), (B), (C) and (D)
• D. (B), (C) and (D) only

Hint:

Consider demand and supply side causes of inflation

Answer 1

The Correct Option is C

(A) Higher aggregate demand leads to increased prices, causing *demand-pull inflation*.

(B) Higher cost of production increases the cost of goods, leading to *cost-push inflation*.

(C) Higher international food and fuel prices can push up domestic prices, leading to inflation.

(D) Higher taxes and reduced subsidies can increase costs, leading to inflation.

Thus, all four statements are correct. Hence, the correct answer is (c).