Question

“In an economy Planned spending is more than Planned output”.

Explain its impact on the level of output, income and employment. 

Answer 1

If planned expenditure exceeds anticipated output in an economy, it suggests that ex-ante aggregate demand exceeds ex-ante aggregate supply (AD > AS).

Planned Output indicates planned aggregate supply, whereas Planned Spending represents planned aggregate expenditure.

1. Effect on output: Producers will expand production to fulfill the rising demand in the economy. As a result, the economy's output will rise.
2. Effect on Employment: Producers will use more resources (labor) to increase production. As a result, the economy's employment will grow.
3. Effect on Income: Increased employment will result in more job opportunities. It will raise the level of income in the economy.