Question

"In an economy, Aggregate Demand (AD) is more than Aggregate Supply (AS)."

Elaborate the possible impacts of the same, on the level of output, income and employment.

Answer 1

When aggregate demand exceeds aggregate supply in an economy, it indicates that consumers intend to purchase more goods and services than producers intend to generate (i.e., supply). When stocks begin to decline and fall below the target level, producers increase output. As a result, the revenue level rises and continues to do so until AD and AS are equal once more.