_____ refers to that level of aggregate demand, which can be met by the corresponding supply in the economy.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Effective demand
Effective demand principle: If the supply of final goods is assumed to be infinitely elastic at constant price over a short period of time, aggregate output is determined solely by the value of aggregate demand. This is called effective demand principle.
Effective demand refers to the level of aggregate demand which can be met by the corresponding aggregate supply in the economy. It is the point where aggregate demand equals aggregate supply, leading to equilibrium output and employment in the economy.