Question
When aggregate supply exceeds aggregate demand
Answer: Option A
Answer: (a)
Deflation sets in when aggregate supply exceeds aggregate demand. Recession sets in.
This will lead to a buildup in stocks (inventories) and this sends a signal to producers either to cut prices (to stimulate an increase in demand) or to reduce output so as to reduce the buildup of excess stocks.
Either way - there is a tendency for output to move closer to the current level of demand.
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Answer: (a)
Deflation sets in when aggregate supply exceeds aggregate demand. Recession sets in.
This will lead to a buildup in stocks (inventories) and this sends a signal to producers either to cut prices (to stimulate an increase in demand) or to reduce output so as to reduce the buildup of excess stocks.
Either way - there is a tendency for output to move closer to the current level of demand.
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