Answer:
Excess demand refers to the situation when Aggregate Demand (AD) is in excess of Aggregate supply(AS), corresponding to full employment in the economy. Income and employment AD and AS Curves In a situation of excess demand, government raises the rates of all taxes. This reduces the purchasing powder of the people and reduces both consumption and investment expenditures. A fall in consumption and investment expenditures reduces the level of aggregate demand and helps to check the problem of excess demand.
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