ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -When Aggregate demand is more than Aggregate supply, then the planned inventory would fall below the desired level. To bring back the Inventory at the desired level, the producers expand the output More output means more income.

Detailed explanation-2: -A reduction in aggregate demand causes a leftward shift in the aggregate demand curve. This reduction lowers the GDP and price levels. This leads to economic contractions, making demand fall below the economy’s potential GDP, thereby causing a recession. Real GDP then falls, and so does the aggregate price level.

Detailed explanation-3: -As energy becomes expensive, it pushes up the overall price level, leading to a decline in aggregate demand. A recession can also be triggered by a country’s decision to reduce inflation by employing contractionary monetary or fiscal policies.

Detailed explanation-4: -When actual output is below the potential output, aggregate demand or aggregate supply have fallen, causing a fall in employment and output. When a negative output gap exists, the unemployment rate will be higher than the natural rate of unemployment.