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Impact of Excess Demand

Effect on Output

It does not affect output

As economy is already working at full capacity

There is no idle capacity in economy

 

Effect on Employment

it does not effect employment

It is because economy is already operating at full employment level

 

Effect on General price Level

It leads to increases in prices of commodity

This is because of Inflationary gap

(as price of commodity is more than supply)

Impact of Excess Demand - Teachoo.JPG

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Question 1

What is the Impact of excess demand on output, employment and prices?

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Impact of Excess Demand Effect on Output Effect on Employment Effect on General price Level No Effect (No idle capacity) No Effect (Already full Employment) Increase in Prices (Due to Inflationary gap)

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CA Maninder Singh is a Chartered Accountant for the past 12 years. He also provides Accounts Tax GST Training in Delhi, Kerala and online.