Demand-pull inflation

Demand-pull inflation means that there is a demand in the economy that is higher than what can be produced in the economy at full employment.

Demand-pull inflation can be caused by an expansionary fiscal policy with public expenditure increases. Demand-pull inflation can also occur with lower taxes. Demand-pull inflation can occur even when there is unemployment, if the unemployment is structural so that companies can not increase there workforce when the demand increases.