What type of inflation occurs when aggregate demand exceeds aggregate supply?

When aggregate demand exceeds aggregate supply, the economy experiences demand-pull inflation. This type of inflation occurs when there is a surge in demand for goods and services that outpaces the economy's ability to produce them, leading to upward pressure on prices. As consumers have more purchasing power, either from increased income or through borrowing, they start to spend more. This heightened demand can result in shortages and, consequently, higher prices as producers try to catch up with demand.

In contrast, cost-push inflation arises from rising costs of production, which lead to decreased supply regardless of demand levels. Stagflation is characterized by stagnation in economic growth combined with inflation, and hyperinflation describes an extreme and rapid increase in prices usually associated with a collapse in the value of currency. Therefore, demand-pull inflation is specifically tied to the scenario where demand exceeds supply, making it the correct choice in this context.