Demand–pull inflation

Aggregate Demand increasing faster than production.

Demand-pull inflation arises when aggregate demand in an economy outpaces aggregate supply. It
involves inflation rising as real gross domestic product rises and unemployment falls, as the economy
moves along the Phillips curve. This is commonly described as "too much money chasing too few goods".
More accurately, it should be described as involving "too much money spent chasing too few goods",
since only money that is spent on goods and services can cause inflation. This would not be expected to
persist over time due to increases in supply, unless the economy is already at a full employment level.

The term demand-pull inflation is mostly associated with Keynesian economics.

How it happens

According to Keynesian theory, the more firms will

employ people, the more people are employed,
and the higher aggregate demand will become. This
greater demand will make firms employ more
people in order to output more. Due to capacity
constraints, this increase in output will eventually
become so small that the price of the good will rise.
At first, unemployment will go down, shifting AD1
to AD2, which increases Y by (Y2 - Y1). This increase
in demand means more workers are needed, and
then AD will be shifted from AD2 to AD3, but this
time much less is produced than in the previous
shift, but the price level has risen from P2 to P3, a much higher increase in price than in the previous
shift. This increase in price is called inflation