Question

If the equilibrium output in an economy is more than the full employment output, which of the following correctly describes the situation?

विकल्प

• Demand is more than the output produced at full employment level; this is excess demand and prices rise in the long run

• All factors are fully used at equilibrium and prices remain constant in the long run

• Demand equals the output produced at full employment level and prices show no long-run change

• Demand is not enough to employ all factors of production; this is deficient demand and prices fall in the long run

Answer 1

When equilibrium output is more than full employment output, demand is more than the output produced at full employment level. This situation is called excess demand, and it leads to a rise in prices in the long run.