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Determination of Income and Employment — Economics STD 12 Humanities & Commerce — Question

Rajasthan BoardEnglish MediumSTD 12 Humanities & CommerceEconomicsDetermination of Income and Employment2 Marks
Question
Justify the following statement, with valid reason.
‘‘Ex-ante Aggregate Demand is always equal to Ex-ante Aggregate Supply.’’
✓

Answer

Ex-ante Aggregate Demand is equal to Ex-ante Aggregate Supply only when the economy is in equilibrium. At under-employment equilibrium level, when Ex-ante Aggregate Demand falls short of Ex-ante Aggregate Supply, it will lead to accumulation of unplanned inventories. Hence the producer will reduce employment leading to reduction in output and income till the two forces becomes equal to each other and vice versa

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