What distinguishes demand-pull inflation from cost-push inflation?

Demand-pull inflation is characterized by the phenomenon where the overall demand for goods and services in an economy outpaces the production capacity, leading to an increase in prices. This situation typically arises due to various factors, such as increased consumer confidence, lower interest rates, or government spending, all of which stimulate demand. When demand exceeds supply, producers may be unable to keep up with the heightened appetite for goods, resulting in inflationary pressures as prices rise to balance the discrepancy between supply and demand.

In contrast, the other options reflect factors that do not correctly define demand-pull inflation. For instance, supply shortages can contribute to inflation but are more associated with cost-push inflation, where rising costs of production, such as increased raw material costs, lead to higher prices. Additionally, while demand-pull inflation can vary in duration, it is not inherently a temporary phase, as it can persist until the underlying demand and supply dynamics change significantly. Understanding these distinctions is essential for grasping the complexities of inflation types within macroeconomics.