Q.Explain the statement "Too much money chasing too few goods causes inflation."

The statement describes demand-pull inflation: excess money (demand) relative to a limited quantity of goods pushes prices up.

'Too much money chasing too few goods' explains inflation from the demand side:

• When the money supply and purchasing power in people's hands increase (through higher incomes, credit, or government spending) faster than the output of goods and services, aggregate demand exceeds supply.
• Since the quantity of goods is limited, buyers compete for them and are willing to pay more, so prices are bid up.
• The 'too much money' is the excess demand; the 'too few goods' is the limited supply. Their imbalance causes a sustained rise in the price level — inflation. …