Equilibrium level of income is determined at that point when aggregate demand is equal to aggregate supply. Aggregate Demand represents the total expenditure on final goods and services in an economy. It consists of (a) Consumption expenditure (C) and (b) Investment expenditure (1). Thus, ADC + I. Aggregate supply refers to the total production of final goods and services in an economy. In other words, it refers to the country's National Product or National Income. Thus, AS = Y. The equilibrium level of income is determined at a point where AD - AS. The given diagram illustrates the idea.
In the diagram, AD and AS curves intersect each other at point E, which is the point of equilibrium. The equilibrium level of income is OY.