Demand-pull inflation occurs when aggregate demand in an economy exceeds aggregate supply, leading to a general rise in price levels. Let's analyze each factor:

Step 1: Understanding Deficit Financing

Deficit financing occurs when the government spends more money than it collects in revenue, often by printing more currency or borrowing. This increases the money supply in the economy, boosting purchasing power and aggregate demand. When this increased demand outpaces the economy's ability to produce goods and services, it results in demand-pull inflation.

Step 2: Understanding Black Money

Black money refers to unaccounted wealth that is not reported to tax authorities. This money often circulates in the economy through informal channels and increases purchasing power without corresponding increases in legitimate economic output. The injection of black money into the economy raises aggregate demand, contributing to demand-pull inflation.

Step 3: Understanding High Population Growth

High population growth increases the number of consumers, which naturally raises aggregate demand for goods and services. However, if this increased demand is not matched by proportional increases in production capacity and supply, it creates inflationary pressure. While population growth contributes to demand, it is more directly associated with cost-push inflation through increased labor costs rather than being a primary driver of demand-pull inflation.

Final Analysis

Both deficit financing (1) and black money (2) directly increase aggregate demand without corresponding increases in supply, making them clear contributors to demand-pull inflation. High population growth (3) increases demand but is less directly responsible for demand-pull inflation compared to the other factors.

Therefore, the correct factors are 1 and 2.

Related Concepts

Demand-Pull Inflation: Occurs when total demand for goods and services exceeds the economy's capacity to produce them, leading to rising prices.

Cost-Push Inflation: Results from increases in production costs (e.g., wages, raw materials) that are passed on to consumers through higher prices.

Aggregate Demand Formula: $AD=C+I+G+(X-M)$ where C=Consumption, I=Investment, G=Government spending, X=Exports, M=Imports