Demand Pull Inflation
Demand-pull inflation occurs when the aggregate demand for goods and services exceeds the aggregate supply of goods and services at existing prices, that is, when goods and services are in excess demand.
This type of inflation increases jobs and stimulates the economy, but it also increases the price of goods. Due to a lack of needed supply, businesses raise prices to meet the increased demand.
Historically, this is the most common reason for inflation. The demand-pull theory explains inflation in economics by describing the effects of imbalanced aggregate supply and demand.
Basically, when the demand for a product exceeds the supply, the price rises. Many economists refer to this phenomenon as “too many dollars chasing too few goods.”