CBSE 2020 Class 12 Economics Delhi Set 1

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Discuss the working of the adjustment mechanism in the following situations :
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Question : 22
Total: 46
If Aggregate demand is greater than Aggregate supply.
Solution:  
When AD>AS, then it implies a situation, where the total demand for goods and services is more than the total supply of the goods and services. This implies a situation of excess demand. Due to the excess demand, the producers draw down their inventory and increase production. The increase in production requires hiring more factors of production, thereby increases employment level and income. Finally, the income will rise sufficiently to equate the AD with AS , thus the equilibrium is restored back.
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