Fig. 58 Equilibrium level of national income.
(e) Aggregate demand equals aggregate supply at the equilibrium price level P. At any price level above this, say P1
, aggregate supply exceeds aggregate demand and the resulting excess supply will force the price level down to P. At price levels below P, say P2
, aggregate demand exceeds aggregate supply and this excess demand will force the price level up to P.
(f) The equilibrium level of real national income and the price level will change if there is a shift in the aggregate demand schedule. For example, if aggregate demand rises from AD to AD1, this results in an increase in the equilibrium real income level from E to E1 and an increase in the price level from P to P 1 .