Page 2 - lesson note -Income Determination and Multiplier-44

Under employment equilibrium: -

It refers to a situation when aggregate demand is equal to the aggregate
supply corresponding to under employment of resources. It occurs prior
to the full employment level.
Y
AD /AS AS
E
AD

|

|

X
O
M Income/output/employment
|
In the above diagram

• Planned level of equilibrium is at point E where the planned aggregate
demand is equal to planned aggregate supply, accordingly OM is the full
employment level of output.
|
• Actual level of Aggregate demand is lower than the required level
Aggregate demand AD.
|
• Actual equilibrium is determined at point which corresponds under
|
employment of resources M

Over full employment equilibrium: -
It refers to situation when aggregate demand is equal to the
aggregate supply beyond the full employment level.

Y
AS
AD /AS
|
|

F

AD

E

X
O M
1
Income/output/employment