If aggregate demand is lower than total output in an economy national income will?

A. be constant
B. be at equilibrium
C. increase
D. fall

Correct Answer:

Option C – increase

Explanation

Recall that a downward sloping aggregate demand curve means that as the price level drops, the quantity of output demanded increases. Similarly, as the price level drops, the national income increases.

when demand is lower than total output it means price will below. That is to say, they are more goods in the market than people who are willing to buy them. When the price drops, national income (real income) increases. Because prices are low, money can buy more goods as against when prices are high.