With reference to Indian economy, demand-pull inflation can be caused/increased by which of the following?
1. Expansionary policies
2. Fiscal stimulus
3. Inflation-indexing of wages
4. Higher purchasing power
5. Rising interest rates
Select the correct answer using the code given below:

The correct answer is 1, 2 and 4 only.

Understanding Demand-Pull Inflation:
Demand-pull inflation occurs when the overall aggregate demand for goods and services in an economy outpaces the aggregate supply. When consumer demand increases significantly without an immediate increase in supply, prices rise, leading to inflation.

Analysis of the Given Statements:

1. Expansionary policies: Expansionary monetary policy (such as reducing key interest rates or increasing money supply) makes credit cheaper and boosts investment and overall demand in the economy. Therefore, it causes demand-pull inflation.

2. Fiscal stimulus: Fiscal stimulus involves increasing government spending or reducing taxes. This injects money into the economy, boosting public spending and aggregate demand. Hence, it contributes to demand-pull inflation.

3. Inflation-indexing of wages: Indexing wages to inflation means automatically raising wages as prices rise to maintain real purchasing power. This is a mechanism triggered by existing inflation to protect workers' earnings and typically contributes to cost-push inflation (wage-price spiral) rather than initiating demand-pull inflation.

4. Higher purchasing power: When consumers have higher disposable income and purchasing power, their spending increases. This rise in demand for goods and services directly causes demand-pull inflation.

5. Rising interest rates: Increasing interest rates is a contractionary monetary policy used to curb inflation. Higher rates make borrowing more expensive, which decreases consumer spending and business investment, thereby reducing aggregate demand.

Conclusion:
Statements 1, 2, and 4 correctly lead to or increase demand-pull inflation. Thus, the correct option is 1, 2 and 4 only.