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

Demand-pull inflation is characterized by an increase in overall demand for goods and services that exceeds the economy's capacity to produce them, leading to upward pressure on prices. This situation typically arises in a growing economy where consumers have more disposable income and are willing to spend, or in scenarios where government spending increases significantly. The essential factor here is that the demand surpasses supply, which causes prices to rise as producers cannot keep up with the heightened demand.

In contrast, cost-push inflation occurs when the costs of production increase, prompting producers to pass these higher costs onto consumers in the form of increased prices. This type of inflation is typically linked to factors such as rising wages or increased prices for raw materials, not due to consumer demand.

The other choices do not accurately define the distinct characteristics of demand-pull and cost-push inflation. Demand-pull inflation is not caused by increased supply, nor does cost-push inflation inherently result in decreased aggregate demand. Additionally, while consumer spending is a component of demand-pull inflation, it is not a defining factor for cost-push inflation, as cost-push inflation is primarily driven by changes in production costs rather than direct changes in consumer behavior.