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Economics explained


The macroeconomy

Interaction of aggregate demand and aggregate supply

Interaction of aggregate demand and aggregate supply

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The equilibrium level of national income.

Where the aggregate demand curve intersects with the aggregate supply curve, the total demand for goods and services in the economy is equal to the total supply of goods and services in the economy. This is known as the equilibrium level of national income

Equilibrium occurs at the price level P and national output ( Real GDP) of Y

If the price level was above P, some goods and services would not be sold and firms would have to cut their prices.

If the price level was initially below P, the excess demand would push the price level back up to the equilibrium level.

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