Question

When aggregate supply exceeds aggregate demand or when investment is less than savings, _____________ will decrease.

• A. savings
• B. price
• C. income
• D. all of the above

Answer 1

Answer: (C)

income

When aggregate supply is more than aggregate demand or when investment is less than savings, then the planned inventory rises above the desired level. To clear the unwanted increase in inventory, firms plan to reduce the production output till Aggregate demand becomes equal to Aggregate supply. Therefore, level of national income reduces to the level of aggregate demand in the economy.