<u>When aggregate demand exceeds aggregate supply, inflation is the likely result.
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Further explanation:
The equality between the aggregate demand and aggregate supply ensures that the economy is in equilibrium. And, the inequality between the two depicts that the economy is in disequilibrium state. When the aggregate demand exceeds the aggregate supply, then the produced output is not sufficient to settle the demand of the entire economy. As a result, inflation happens in the entire economy. The immediate impact of this is inflation, although gradually in the short run, producers respond by increasing the level of production. As a result, output expands and employment level in the economy rises. And, gradually the economy will attain the equilibrium state again from this dis-equilibrium.
Therefore, inflation is the likely result when aggregate demand is more than the aggregate supply.
Learn more:
1. Learn more about inflation.
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2. Learn more about the inflation rate and the economy.
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3. Learn more about the effects of inflation.
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Answer details:
Grade: Senior school
Subject: Economics
Chapter: Aggregate demand-aggregate supply
Keywords: in general, when aggregate demand, exceeds, aggregate supply, what, is likely to result, inflation, inflation rate in the economy, economy is in equilibrium when aggregate demand matches aggregate supply, disequilibrium when aggregate demand is unequal to aggregate supply.
