Question

Relative to the full employment level of output, the equilibrium output determined by \[Y = AD\] can be:

Options

• Only less than the full employment level of output

• Only more than the full employment level of output

• Only equal to the full employment level of output

• Either less than or more than the full employment level of output

Answer 1

Equilibrium output is determined solely by the equality of \[Y\] and \[AD\], and it is not always the level where everyone is employed. It may be less than the full employment level (deficient demand) or more than the full employment level (excess demand).