Practicing Success

Target Exam

CUET

Subject

Economics

Chapter

Macro Economics: Determination of Income and Employment

Question:

What is the adjustment mechanism of disequilibrium situation of AD > AS ?

Options:

Producers expand the production

Producers reduce the production 

Government impose less tax

None of the above

Correct Answer:

Producers expand the production

Explanation:

To bring back the inventories at the desired level, producers expand the production. This raises the level of employment, level of output and in turn income level. These levels keep rising till AD = AS or equilibrium is achieved.