What is demand-pull inflation?

Demand-pull inflation occurs when the overall demand for goods and services in an economy exceeds the available supply. This imbalance causes prices to rise, as consumers are willing to pay more to secure the limited products available. When aggregate demand increases—due to factors such as rising consumer confidence, increased government spending, or growth in consumer incomes—it leads to higher demand across the economy. Producers may not be able to immediately increase supply to meet this heightened demand, resulting in upward pressure on prices.

The other options don't accurately describe demand-pull inflation; for instance, supply exceeding demand would lead to lower prices, not inflation. Similarly, decreased production costs may lead to lower prices or cost-push inflation instead. Lastly, government regulation could influence various market factors, but it does not directly define the mechanism behind demand-pull inflation.