The graph shows AD₁ above AD at full employment. Since output cannot rise beyond full employment in the short run, the excess demand mainly causes A dashed 45° line, an AD line that meets it at F at the full-employment income of ₹400 crore, and a higher line AD₁. At ₹400 crore of income, AD₁ is ₹460 crore (point G), ₹60 crore above F.

The graph shows AD₁ above AD at full…

The graph shows AD₁ above AD at full employment.

Question 13

MediumOriginal question

The graph shows AD₁ above AD at full employment. Since output cannot rise beyond full employment in the short run, the excess demand mainly causes

A dashed 45° line, an AD line that meets it at F at the full-employment income of ₹400 crore, and a higher line AD₁. At ₹400 crore of income, AD₁ is ₹460 crore (point G), ₹60 crore above F.

a rise in real output and employmentCorrect answerYour answera fall in pricesCorrect answerYour answera rise in the general price levelCorrect answerYour answerinvoluntary unemploymentCorrect answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer C

Correct answer: C

With all resources already in use, extra spending bids up prices instead of output.

Concept: Effect of excess demand
Typical timeTypical: 70 s
Your timeYours: —

The rule this testsExcess demand and the inflationary gap

Practise this chapter →

Ten questions from Excess & Deficient Demand, at your own pace.

Practise this chapter →

Ten questions from Excess & Deficient Demand, at your own pace.

The graph shows AD₁ above AD at full employment.

Question 13

Explanation