0 votes
in Economics by (28.5k points)
Describe the economic scenario when ex-post Aggregate Demand surpasses ex-post Aggregate Supply and its potential consequences on price levels, production and employment.

1 Answer

0 votes
by (227k points)
Best answer

When ex-post Aggregate Demand exceeds ex-post Aggregate Supply in an economy, it results in a situation where the total demand for goods and services exceeds the economy's capacity to produce them in the short run. 


1. Price Increases: With more demand than supply, businesses may raise prices to balance the limited availability of goods and services. This can lead to a general increase in the overall price level, contributing to inflation. 

2. Shortages: As production struggles to meet high demand, shortages of goods can occur, potentially leading to dissatisfaction among consumers and creating a seller's market. 

3. Increased Employment: To meet the heightened demand, businesses might need to increase their production, potentially leading to increased hiring and lower unemployment rates.