Which form of inflation is driven by too much demand relative to supply in the economy?

• A. Monetary Inflation
• B. Demand-Pull Inflation
• C. Inflation
• D. Currency Depreciation

Answer: (B)

Demand-pull inflation happens when overall demand in the economy grows faster than the economy’s ability to produce goods and services. When demand increases—due to sturdy consumer spending, rising investment, government stimulus, or strong exports—but capacity is near its limit, prices rise as buyers compete for the available goods. That mismatch between demand and supply is the essence of demand-pull inflation.

Monetary inflation would focus on changes in the money supply rather than the demand-supply balance. Inflation is too general a label to describe a specific mechanism, and currency depreciation raises prices mainly by making imports costlier rather than by boosting demand relative to supply. So the scenario described is best explained by demand-pull inflation.