Question

Discuss the working of the adjustment mechanism in the following situation Aggregate demand is greater than aggregate supply?
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Answer 1

Explanation:

When Aggregate Demand is greater than Aggregate Supply (AD>AS), buyers are planning to, buy more goods and services than what producers are planning to produce. It will lead to fall in planned inventories below the desired level. The producers in turn will produce more, which will raise the income level i.e. AS, till AD becomes equal to AS.❤️☺️✌️