Question

Once the economy reaches the equilibrium point where \[Y = AD\], the level of income in the economy:

Options

• Will not change if left to itself

• Will continuously rise until full employment is reached

• Will automatically adjust to the full employment level of output

• Will continuously fall due to deficient demand

Answer 1

At equilibrium, output produced is exactly matched by aggregate demand, so there is neither unsold output pushing income down nor unmet demand pushing income up. Hence, the level of income will not change if left to itself.