Determination of Equilibrium Income and Employment
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Q1
As a result of aggregate demand being greater than aggregate supply the
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national income will increase.
Explanation:
When aggregate demand is greater than aggregate supply, the national income will increase leading to inflationary gap. -
Q2
National income is at its equilibrium when
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aggregate demand and supply are equal.
Explanation:
Equilibrium literally means the state of balance. The national income is at equilibrium when aggregate demand is equal to aggregate supply. -
Q3
Say's law of market states that
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supply creates its own demand.
Explanation:
When the supply is greater than the demand then automatically demand is created. Thus, supply creates its own demand. -
Q4
Increased unemployment and less motivation at work would shift aggregate
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supply to the left.
Explanation:
Increased unemployment benefits and less motivation to work, leads to less people working and reduced aggregate supply. -
Q5
Increased levels of spending on imports will shift aggregate
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demand to the left.
Explanation:
Increased levels of spending on imports, leads to less spending domestically and reduces domestic demand.
