Aggregate supply greater than aggregate demand

Definition

When the total supply of goods and services in an economy exceeds the total demand for them, resulting in a surplus. This can lead to decreased prices and production levels.

Analogy

Imagine a store that has more products on its shelves than there are customers to buy them. The excess inventory starts piling up, and the store needs to lower prices or reduce production to get rid of the surplus.

Related terms

Surplus: A situation where the quantity supplied exceeds the quantity demanded at a given price.

Deflation: A sustained decrease in the general price level of goods and services in an economy.

Contractionary fiscal policy: Government measures aimed at reducing aggregate demand to control inflation by decreasing government spending or increasing taxes.