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DEFINITION of 'Demand-Pull Inflation'. A term used in Keynesian economics to describe the scenario that occurs when price levels rise because of an imbalance in the aggregate supply and demand. When the aggregate demand in an economy strongly outweighs the aggregate supply, prices increase. Economists will often say that demand-pull inflation is a result of too many dollars chasing too few goods.
In the long run we will return to the normal equilibrium. Cost-push inflation occurs when the short-run aggregate supply curve shifts leftward, as from AS1 to As2. If the government attempts to counter the decrease in real domestic output by increasing AD1 to AD2, the price level rises. Essentially, the economy moves from point a to b to c.