ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -False. In response to increase in AD, output increases only till full employment equilibrium is struck in the economy.

Detailed explanation-2: -When AS > AD (or when AD < AS). When aggregate supply (output) is more than ex-ante aggregate demand, it means consuming households are saving more. This will result in unplanned undesired increase in inventories of unsold stock.

Detailed explanation-3: -(ii) When AD<AS, it means that the buyers are planning to buy fewer goods and services than the producers are planning to produce or supply. In this situation, inventories start rising and move above the desired level. So, the producers curtail the production and retrench the workers and unemployment prevails.

Detailed explanation-4: -Let’s begin by looking at the point where aggregate supply equals aggregate demand-the equilibrium. We can find this point on the diagram below; it’s where the aggregate supply, AS, and aggregate demand, AD, curves intersect, showing the equilibrium level of real GDP and the equilibrium price level in the economy.

Detailed explanation-5: -Answer: According to AD= AS approach, the equilibrium is determined only when aggregate demand (AD) equals aggregate supply (AS) because at this level there is no tendency for income and output to change and the economy may achieve full employment equilibrium.