Which theory explains inflation occurring when demand for goods exceeds existing supplies?

The Demand-pull theory is the explanation for inflation that occurs when the demand for goods surpasses their available supply. This phenomenon typically arises in a growing economy where consumers have increased purchasing power, leading to heightened demand. As consumers compete for a limited number of goods, the prices of those goods rise, resulting in inflation.

This theory emphasizes the relationship between consumer demand and price levels, asserting that excessive demand can lead to price hikes when production cannot keep pace. Factors that can contribute to increased demand include higher consumer spending, government stimulus, and overall economic expansion.

In contrast, the other theories mentioned do not focus on demand exceeding supply. Cost-push theory pertains to inflation resulting from rising production costs, often leading to increased prices irrespective of consumer demand. Monetary theory discusses inflation being driven by an increase in money supply rather than direct consumer demand. Supply theory primarily deals with the effects of supply constraints on market prices, which is not the issue being addressed in this question.

Thus, Demand-pull theory accurately captures the scenario of inflation driven by excess demand for goods.