Question

(a) “In an economy, ex-ante Aggregate Supply is more than ex-ante Aggregate Demand.”
Explain its impact on the level of output, income, and employment.

Hint:

Excess \(AS\) over \(AD\) leads to reduced production, income, and employment, causing economic contraction.

Answer 1

Reduced Production: Surplus stock leads to an accumulation of inventory, compelling businesses to scale back manufacturing.
Decreased Earnings: A decrease in output results in lower income for both employees and corporations.
Job Losses: Companies might eliminate positions because of diminished production requirements, consequently increasing unemployment rates.