Equilibrium Level of Income

The equilibrium level of income is the point where the total amount people want to spend (aggregate demand) equals the total income produced in the economy (aggregate supply). At this point, there’s no tendency for income to change because everything produced is effectively being purchased. If income rises above this level, demand decreases relative to supply, causing income to fall. Conversely, if income falls below it, demand increases, pushing income back up. This balance point ensures stability in overall economic activity, with resources fully utilized without excessive inflation or unemployment.