Question : The equilibrium in the aggregate market occurs when:

Option 1: Aggregate demand equals aggregate supply
 

Option 2: Consumption equals investment
   

Option 3: Government expenditure equals net exports

 

Option 4: Saving equals investment

Correct Answer: Aggregate demand equals aggregate supply

Solution : The correct answer is (a) Aggregate demand equals aggregate supply.

The equilibrium in the aggregate market occurs when aggregate demand (AD) equals aggregate supply (AS). This is the point at which the total quantity of goods and services demanded in the economy is equal to the total quantity of goods and services supplied.

Aggregate demand represents the total spending by households, businesses, government, and foreign entities on goods and services in an economy. It consists of consumption expenditure, investment expenditure, government expenditure, and net exports (exports minus imports).

Aggregate supply represents the total quantity of goods and services that businesses are willing and able to produce and supply in the economy. It reflects the productive capacity of the economy and is determined by factors such as labor, capital, technology, and resources.

At the equilibrium, aggregate demand matches aggregate supply, indicating a balance between the quantity of goods and services demanded and the quantity of goods and services supplied in the economy. This equilibrium point determines the level of real GDP and the price level in the economy.