Demand-pull inflation

It involves inflation rising as real gross domestic product rises and unemployment falls, as the economy moves along the Phillips curve.

This would not be expected to happen, unless the economy is already at a full employment level.

Due to capacity constraints, this increase in output will eventually become so small that the price of the good will rise.

This increase in demand means more workers are needed, and then AD will be shifted from AD2 to AD3, but this time much less is produced than in the previous shift, but the price level has risen from P2 to P3, a much higher increase in price than in the previous shift.

This increase in price is what causes inflation in an overheating economy.