ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Most simply, the formula for the equilibrium level of income is when aggregate supply (AS) is equal to aggregate demand (AD), where AS = AD. Adding a little complexity, the formula becomes Y = C + I + G, where Y is aggregate income, C is consumption, I is investment expenditure, and G is government expenditure.

Detailed explanation-2: -The Keynesian condition for the determination of equilibrium real GDP is that Y = AE. This equilibrium condition is denoted in Figure by the diagonal, 45° line, labeled Y = AE. To find the level of equilibrium real national income or GDP, you simply find the intersection of the AE curve with the 45° line.

Detailed explanation-3: -Macroeconomic equilibrium occurs when the quantity of real GDP demanded equals the quantity of real GDP supplied at the point of intersection of the AD curve and the AS curve. If the quantity of real GDP supplied exceeds the quantity demanded, inventories pile up so that firms will cut production and prices.

Detailed explanation-4: -Y = C + I + G + X − Im. Here, Y denotes gross domestic product, C is private consumption, I is investment, G is government consumption (government spending), X is exports, and Im is imports. Introduction to Macroeconomics.