Inflation is a general rise in the average level of prices, sustained over time.
Demand-pull inflation occurs when aggregate demand (AD) increases above the capacity of the economy to meet this demand - prices are 'pulled up' by demand, rather than being 'pushed up' by cost increases.
Demand-pull inflation could arise from any increase in a component of aggregate demand, including:
Each of the above will make the AD curve shift to the right.
In the case of a monetary stimulus, the monetary transmission mechanism shows the route through from interest rates to the inflation rate.
AD-AS analysis is used to show the effect of an increase in aggregate demand on the price level.
The gradient of the AS curve has an effect on the extent of inflation - the more it is elastic, the smaller the inflationary effect.
It has long been noted (since the work of American economist, Irving Fisher) that excess money tends to push up prices. In his 'quantity theory of exchange' Fisher introduces a simple formulation to explain the connection between money and prices.
Where M = the stock (supply) of money, V = the velocity of circulation of money in a given period, P = average prices, and T = the number of transactions in a given period.
We can rearrange to state that P = MV/T. If we assume that M and V are constants in the short run, then any change in the quantity of money - M, will lead to the same proportionate increase in price (P).