Previous Year Questions

Question :

Which of the following statements about different types of inflation are CORRECT?

I. Demand-Pull Inflation occurs when there is an increase in aggregate demand that outstrips aggregate supply, leading to higher prices.

II. Cost-Push Inflation is caused by a rise in the costs of production, such as wages and raw materials, which leads to a decrease in aggregate supply and an increase in prices.

III. Built-In Inflation is the result of adaptive expectations, where workers demand higher wages in anticipation of future inflation, which in turn leads to higher production costs and further inflation.