What are impacts or effects of excess demand on price, output, employment?
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- Effect on General Price Level: Excess demand gives a rise to general price level because it arises when aggregate demand is more than aggregate supply at a full employment level. There is inflation in economy showing inflationary gap.
- Effect on Output: Excess demand has no effect on the level of output. Economy is at full employment level and there is no idle capacity in the economy. Hence output can't increase.
- Effect on Employment: There will be no change in the level of employment also. The economy is already operating at full employment equilibrium, and hence there is no unemployment.
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