Question
Economics Question on National Income Accounting
If the supply of final goods is assumed to be infinitely elastic at constant price over a short period of time, Aggregate output is determined solely by the value of Aggregate demand. This is called __________ Principle.
A
Aggregate supply
B
Aggregate demand
C
Effective demand
D
Perfectly inelastic demand
Answer
Effective demand
Explanation
Solution
The principle of effective demand states that when prices are constant and supply is elastic, aggregate output is determined by aggregate demand.