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Impact of Excess Demand
Effect on Output
It does not affect output
As economy is already working at full capacity
There is no idle capacity in economy
Effect on Employment
it does not effect employment
It is because economy is already operating at full employment level
Effect on General price Level
It leads to increases in prices of commodity
This is because of Inflationary gap
(as price of commodity is more than supply)
NCERT Questions
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Question 1
What is the Impact of excess demand on output, employment and prices?
View AnswerImpact of excess demand:
-
Effect on Output
It does not affect output
As economy is already working at full capacity
There is no idle capacity in economy
-
Effect on Employment
it does not effect employment
It is because economy is already operating at full employment level
-
Effect on General price Level
It leads to increases in prices of commodity
This is because of Inflationary gap
(as price of commodity is more than supply)
