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Question : 18
Total: 52
"In an economy ex-ante Aggregate Demand is more than ex-ante Aggregate Supply."
Explain its impact on the level of output, income and employment.
Explain its impact on the level of output, income and employment.
Solution:
In an Economy, If ex-ante Aggregate Demand is more than ex-ante Aggregate Supply ( AD > AS ) , it means that households are spending more than the flow of goods and services in the economy.
Effect on output: To meet the increased demand in the economy, producers will plan to increase the production. So, Output will rise in the economy.
Effect on Employment: To increase the output, producers will apply additional resources (labour). So, employment will increase in the economy.
Effect on Income: Increase in employment level will lead to the creation of more job opportunities. It will increase the income level in the economy.
Effect on output: To meet the increased demand in the economy, producers will plan to increase the production. So, Output will rise in the economy.
Effect on Employment: To increase the output, producers will apply additional resources (labour). So, employment will increase in the economy.
Effect on Income: Increase in employment level will lead to the creation of more job opportunities. It will increase the income level in the economy.
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