Explanation

Demand-pull inflation occurs when aggregate market demand across the economy outpaces aggregate supply (‘too much money chasing too few goods’).

– 1. Expansionary policies (Included): Accommodative monetary measures lower borrowing costs and expand the money supply, stimulating investment and consumer borrowing.
– 2. Fiscal stimulus (Included): Direct government spending and stimulus transfers inject disposable income into the market, sharply driving up aggregate consumption.
– 4. Higher purchasing power (Included): Rising disposable incomes give consumers greater financial capacity to purchase goods, directly bidding up price levels.
– 3. Inflation-indexing wages (Excluded): Indexing wages (like Dearness Allowance) is an automatic adjustment mechanism to shield workers from rising living costs. It belongs to the wage-price spiral (cost-push inflation) dynamic, as higher labour costs raise production expenses.
– 5. Rising interest rates (Excluded): Rate hikes represent contractionary monetary policy, designed precisely to discourage consumption and curb inflation.

Therefore, statements 1, 2, and 4 are correct — Option A.