When the economy faces demand-pull inflation, fiscal policy should generally move toward a government budget surplus. This can be achieved by reducing government spending or increasing taxes. The goal is to reduce overall demand in the economy, which can help curb inflation. By lowering demand, the pressure on prices can decrease, helping to stabilize the economy.
In contrast, if the government were to run a budget deficit during periods of demand-pull inflation, it could exacerbate the situation by further increasing demand, leading to even higher inflation. Thus, tightening fiscal policy (moving toward a surplus) is typically seen as a necessary response to demand-pull inflation.