6 marks question
WHY MUST AGGREGATE DEMAND BE EQUAL TO AGGREGATE SUPPLY AT THE EQUILIBRIUM LEVEL OF INCOME AND OUTPUT. EXPLAIN WITH THE HELP OF A DIAGRAM.
Equilibrium level of income and output is determined at that point, where Aggregate Demand (AD) is equal to Aggregate Supply (AS). AD and AS will always be equal at the equilibrium level of income and output because any deviation from the equilibrium point will correct itself with the help of Automatic Adjustment Mechanism. There are two situations wherein the Aggregate Demand and Aggregate Supply may deviate from the equilibrium level of Income and Output.
These situations are extensively covered in our study material. You can find it at the below mentioned link.
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