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| 1. |
Explain how the level of effective demand is attained In an economy if Aggregate Demand is more than the Aggregate Supply. |
| Answer» Solution : EFFECTIVE demand refers to that level of output where Aggregate demand is equal to the Aggregate supply. If Aggregate Demand exceedsAggregate Supplyit MEANS buyers are planning to buy more goods and services than producers are planning to produce. Thus, the inventories in hand with the producers will start falling. As a result, producers will plan to raise the production. This will INCREASE the level of INCOME up to the level Aggregate Demand is equal to Aggregate Supply. | |