Q1. With reference to recent trends in global economic activity, consider the following statements:
- An expansion of AI-related investment can simultaneously support aggregate demand and increase demand for certain industrial commodities.
- Global Gross Domestic Product (GDP) growth exceeding estimated potential growth necessarily implies that inflation will immediately fall.
- Persistent supply disruptions can create inflationary pressures even when the underlying source of the disruption is geopolitical rather than domestic.
- Rising long-term bond yields can make coupon income relatively more important for investors compared with gains from an increase in bond prices.
Which of the statements given above are correct?
(a) 3 and 4 only
(b) 1 only
(c) 1, 3 and 4 only
(d) 1, 2, 3 and 4
Answer: (c)
Explanation:
- Statement 1 is correct: AI investment supports economic activity while data centres and associated power infrastructure increase demand for copper.
- Statement 2 is incorrect: Growth above potential can indicate demand pressures and may contribute to higher, rather than necessarily lower, inflation.
- Statement 3 is correct: Geopolitical disruptions to energy, commodities or supply chains can generate cost and supply-side inflation.
- Statement 4 is correct: When yields rise, existing bond prices generally fall, reducing the attractiveness of relying primarily on capital gains and increasing the relative importance of coupon income.
