The correct answer is 1, 2, and 4 only. Key Points Inflation is the rate of increase in prices over a given period of time. Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country. Inflation measures how much more expensive a set of goods and services has become over a certain period, usually a year. There are mainly two types of inflation:- Demand-pull inflation - This occurs due to an increase in aggregate demand in the economy. Cost-push inflation - This occurs when there is a rise in the price of raw materials, higher taxes, e.t.c Demand-pull inflation is mainly caused due to:- Depreciation of rupee. Low unemployment rate. Increased borrowing. Due to fiscal stimulus - It includes increased government consumption or lowering of taxes. Hence 2 is correct. When the government spends more freely, prices go up. Expansionary policies lead to more economic activity via low-interest rates, more money with the public etc. Hence 1 is correct. Asset inflation or Increase in Forex reserves– A sudden rise in exports forces a depreciation of the currencies involved. Higher purchasing Power - When consumers feel confident, they spend more and take on more debt. This leads to a steady increase in demand, which means higher prices. Hence 4 is correct. The rising interest rate - It decreases the money supply in the economy. This may result in a credit crunch in the economy. It is costlier to borrow money in the economy and it leads to a decreased money supply. So, it can not cause demand-pull inflation in the economy Hence 5 is not correct. Inflation-indexing wages - Inflation indexing wages, wages in the economy is linked to inflation which means wage moves as inflation changes in the economy. Such indexing is provided to reduce the effect of inflation on wages. For example - a worker is getting 100 rs as a wage and inflation in the economy increases to 5%, so the wage of the worker increases by 5% i.e. 105. So effective change in the wages is zero and it does not increase/decrease purchasing power. So, it can not lead to a demand to pull inflation in the economy. Hence 3 is not correct.