Demand-driven inflation refers to the continuous sharp rise in the overall price level caused by the total demand exceeding the total supply; Cost-driven inflation refers to the sustained and significant increase in the general price level due to the increase in supply costs without excessive demand.

Tight monetary policy reduces the level of aggregate demand by reducing the growth of money supply. In this case, it is more difficult to obtain credit, and interest rates will increase accordingly. Therefore, when inflation is serious, a tight monetary policy is often adopted.

Monetary policy generally uses the following tools to change the money supply: rediscount interest rate policy and open market business to change the statutory reserve ratio.