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प्रश्न
Answer the following question.
Describe the adjustments that may take place in an economy when ex-ante Aggregate Demand is greater than ex-ante Aggregate Supply.
उत्तर
In case, if AD > AS, then it implies a situation, where the total demand for goods and services is more than the total supply of 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. This process of adjustment mechanism is explained below graphically.
In the figure, AD and AS represent the aggregate demand and aggregate supply curves. Let us suppose that the equilibrium is operating at a situation, where aggregate demand exceeds aggregate supply, i.e. AD > AS. TY' represents the aggregate demand of output by the economy but the aggregate supply is only of NY'. Hence, the economy is facing excess demand equivalent to TN (i.e. TY' – NY'). Due to the excess demand, the producers draw down their inventories and hire more factors of production. This results in an increase in production and employment. The income, output, and employment will continue to rise until all the excess demand is wiped-out. This happens at equilibrium point E, where AD and AS intersect each other. At the equilibrium, OY represents the equilibrium level of output.
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संबंधित प्रश्न
What is aggregate supply?
Explain the role of 'Margin Requirements' in removing this deficient demand gap.
Explain the subjective factors which determine consumption function.
State with reason whether you agree or disagree with the following statements. (any Three)
Aggregate demand depand only on the consumption expenture.
Fill in the blank with appropriate alternatives given below
That part of income, which is not spent on consumption, is called __________.
Match the following Group:
| Group A | Group B | ||
| 1) | Aggregate Supply | a) | Expected receipts |
| 2) | Autonomous Investment | b) | Lord J. M. Keynes |
| 3) | Consumption | c) | Government Investment |
| 4) | A.P.C. | d) | ΔC/ΔY |
| 5) | Investment | e) | C/Y |
| f) | Addition to stock of capital | ||
| g) | Destruction of utility | ||
State whether the following statement is true or false.
The equality between aggregate demand and aggregate supply determines the equilibrium level of employment.
Give reason or explain.
Aggregate demand is a positive function of the level of employment and output.
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Aggregate Demand and Aggregate Supply
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Aggregate supply is influenced by the state of technology only.
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State and discuss the components of Aggregate Demand in a two-sector economy.
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The equilibrium level of income/output is established when ______
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Explain its impact on the level of output, income and employment.
If aggregate demand exceeds aggregate supply in a situation of full employment, what will be its impact on the economy?
With the help of a diagram, determine the equilibrium level of output and income by using Aggregate demand and aggregate supply approach.
