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Question : 2
Total: 5
"In an economy Planned spending is more than Planned output".
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 planned spending is more than planned output, it implies that ex-ante aggregate demand is more than ex-ante aggregate supply (AD > AS).
Planned Spending represents planned aggregate expenditure and planned output represents planned aggregate supply.
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 more job opportunities. It will increase the income level in the economy.
Planned Spending represents planned aggregate expenditure and planned output represents planned aggregate supply.
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 more job opportunities. It will increase the income level in the economy.
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