Question

Show the short-run equilibrium income of an economy with a diagram.

Hint:

Equilibrium income in the short run is determined where the aggregate demand equals aggregate supply.

Answer 1

In the short run, equilibrium income occurs when aggregate demand (AD) equals aggregate supply (AS). This means that the total quantity of goods and services demanded in the economy is equal to the total quantity of goods and services produced at a certain level of income. The equilibrium level of income is where the AD curve intersects the AS curve. 

Diagram Explanation: The AD curve slopes downward, while the AS curve is upward sloping in the short run. The intersection of the two curves determines the equilibrium income.