Concept:When planned aggregate demand is less than total output, the economy experiences excess supply, which pushes income downward.
Explanation:If
AD<Y (aggregate demand below total output), firms cannot sell all the goods they produce.
Unsold goods accumulate as unwanted inventories.
To reduce these inventories, firms cut back on production and employment.
As production falls, total output and national income also fall.
This process continues until
AD=Y, but the immediate effect is a decrease in national income.
Answer:National income will fall.
Correct option: D. fall.