Question:

(a) “In an economy, ex-ante Aggregate Supply is more than ex-ante Aggregate Demand.”
Explain its impact on the level of output, income, and employment.

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Excess \(AS\) over \(AD\) leads to reduced production, income, and employment, causing economic contraction.
Updated On: Jan 30, 2025
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Solution and Explanation

Reduction in Output: Excess supply causes inventory buildup, forcing firms to reduce production. 
Decline in Income: Lower production reduces income for workers and firms. 
Unemployment: Firms may cut jobs due to reduced production needs, leading to higher unemployment.

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