Identify the correct sequence relating to equilibrium in an economy:
A. Inventories in hand with the producers start falling
B. This process continues till aggregate demand becomes equal to aggregate supply
C. When planned demand exceeds planned output
D. Producers will plan to raise production and employment.
E. It means buyers are planning to buy more goods and services than producers are planning to produce
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → C, E, A, D, B
Equilibrium comes when aggregate demand equals aggregate supply. The steps show how the economy gets there when demand is more than output:
C. When planned demand exceeds planned output — This is the starting point.
E. It means buyers are planning to buy more goods and services than producers are planning to produce — This is what demand above output means.
A. Inventories in hand with the producers start falling — Producers meet the extra demand by selling from their stock.
D. Producers will plan to raise production and employment. — Falling stock tells them to produce more.
B. This process continues till aggregate demand becomes equal to aggregate supply — The rise in output stops at equilibrium.
NCERT (2026-27): “4.1 Aggregate Demand and Its Components … Suppose the producer plans to add Rs 100 worth goods to her stock by the end of the year. Her planned investment is, therefore, Rs 100 in that year. However, due to an unforeseen upsurge of demand for her goods in the market the volume of her sales exceeds what she had planned to sell and, to meet this extra demand, she has to sell goods worth Rs 30 from her stock.… 4.2 Determination of Income in Two-Sector Model … The inventory investment can take place due to two reasons: (i) the firm decides to keep some stocks for various reasons (this is called planned inventory investment) (ii) the sales differ from the planned level of sales, in which case the firm has to add to/run down existing inventories (this is called unplanned inventory investment).… …Ex ante supply is equal to ex ante demand only when the final goods market, and hence the economy, is in equilibrium.… 4.3.3 The Multiplier Mechanism … This process goes on, round after round, with producers increasing their output to clear the excess demand in each round and consumers spending a part of their additional income from this extra production on consumption items – thereby creating further excess demand in the next round.…” |