Detailed Explanation:

Answer: Option 1 — 1, 2 and 4 Only

Demand-pull inflation occurs when aggregate demand in an economy outpaces aggregate supply, leading to upward pressure on prices. Expansionary policies (monetary or fiscal), fiscal stimulus through increased government spending, and higher purchasing power all directly increase aggregate demand, thereby causing or intensifying demand-pull inflation.

✅ Statement 1 – Correct: Expansionary policies like increased government spending or lower interest rates boost consumer spending and investment, increasing aggregate demand beyond supply capacity.

✅ Statement 2 – Correct: Fiscal stimulus through government expenditure directly injects money into the economy, raising aggregate demand and creating inflationary pressures when supply cannot match demand.

❌ Statement 3 – Incorrect: Inflation-indexing wages is typically a consequence of existing inflation rather than a primary cause of demand-pull inflation; it creates a wage-price spiral (cost-push inflation) rather than demand-pull inflation.

✅ Statement 4 – Correct: Higher purchasing power due to wage increases, tax cuts, or wealth effects enables consumers to spend more, directly increasing aggregate demand for goods and services.

❌ Statement 5 – Incorrect: Rising interest rates are a contractionary monetary policy tool that reduces borrowing and consumption, thereby decreasing aggregate demand and controlling inflation rather than causing it.

📝 Short Notes: Demand-Pull Inflation

• Demand-Pull Inflation: "Too much money chasing too few goods" - Classical definition
• Key Drivers: Monetary expansion, fiscal expansion, rising consumer confidence, export boom, asset price increases
• Control Measures: Contractionary monetary policy (raising interest rates, increasing CRR/SLR), reducing government spending, increasing taxes
• Difference from Cost-Push: Demand-pull originates from demand side; cost-push originates from supply side (rising input costs)