Q. 12

How does ex

Answer :

The excess demand affects output, employment and prices?

a. Effect on output: Excess demand has no effect on the level of output in an economy. The economy is already at full employment and there is no more idle capacity.

b. Effect on employment: Excess demand has no effect on the level of employment. The economy is already at full employment.

c. Effect on prices: Excess demand leads to a rise in the general price level in an economy. It occurs when the aggregate demand exceeds the aggregate supply at a full-employment level. It leads to inflation in an economy.

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