The type of inflation that emanates from excess demand overs supply is___________?

Step 1: Analyze the question The question asks which type of inflation is caused by excess demand over supply. The key phrase is "excess demand", meaning too much money chasing too few goods.

Step 2: Explain the concepts

• Galloping inflation: This describes the rate of inflation. Prices rise very rapidly, often at double-digit rates or more per year. It says nothing about the cause.
• Imported inflation: Rising prices of imported goods and raw materials push up domestic prices. The cause is external.
• Demand-pull inflation: Aggregate demand grows faster than aggregate supply. Consumers, government and firms spend more than the economy can produce, so prices are pulled upward.
• Cost-push inflation: Production costs rise (wages, raw materials, fuel), so producers raise prices. The cause is on the supply side.

Step 3: Match to the question "Excess demand over supply" is the definition of demand-pull inflation. Aggregate demand exceeds what the economy can supply at the current price level, which pulls prices up.

Step 4: Answer The correct option is C. Demand-pull inflation.

Tip: Remember the direction of the force.

• Demand-pull: demand pulls prices up (excess demand, "too much money chasing too few goods").
• Cost-push: rising costs push prices up (wages, fuel, raw materials).

Whenever you see "excess demand," think "pull."