When firms set their prices high, the overall price level increases. Thus, a high level of output leads to a high level of demand, which leads to a high price level. Thus, a high expected price level leads to a high actual price level. When the expected price level is high, producers produce more output.

The economy experiences a decrease in the price level and an increase in real domestic output. Which is a likely explanation? Aggregate demand decreases and real output falls but the price level remains the same.

The intuition behind the real wealth effect is that when the price level decreases, it takes less money to buy goods and services. More formally, this means that when households’ assets are worth more in terms of their purchasing power, they are more likely to purchase more goods and services.

Calculating Excess Supply and Demand At this price the quantity demanded and supplied is 81,667. At P = 200, the quantity demanded is = 415,000 – 1,200*200 = 175,000. The excess demand is 175,000 – 81,667 = 93,333.

Measure to Correct Excess Demand – Explained!

• In order to correct Excess Demand, the following measures may be adopted:
• Two major instruments of Monetary Policy, used to decrease availability of credit are:
• Increase in Bank Rate:
• Open Market Operations (Sale of securities):
• Increase in Legal Reserve Requirements (LRR):
• There are two components of legal reserves:

The level capacity strategy involves maintaining stable workforce level and output rates over the planning horizon. This allows the firm to maintain inventory levels of finished products higher than expected in situations of low demand variability.

The purpose of the capacity management process is to ensure that the capacity of IT services and the IT infrastructure meets the agreed capacity and performance-related requirements in a cost-effective and timely manner.

Here are 5 benefits of resource capacity planning.

• Benefit #1: Reduce Resource Costs. Capacity planning lets you identify the least expensive way of meeting upcoming resource needs.
• Benefit #2: Ensure Availability.
• Benefit #3: Manage Your Skills Inventory.
• Benefit #4: Identify Skill Shortages.
• Benefit #5: Book Resources.

The capacity decisions within a company are very important because they help determine the limit of output and provide a major insight to determining operating costs.

That’s the central, simple benefit to capacity planning; it ensures you have team members with the correct skills when you need them. Beyond keeping your team busy (but not too busy), capacity planning has two key benefits: increasing project efficiency and making it easier for agencies to plan for the future.

Capacity planning is important due to the following reasons: 1. Capacity limits the rate of output. Therefore, capacity planning determines the ability of an enterprise to meet future demand for its products and services. Excess or idle capacity increases the cost per unit of output.

Factors affecting Facility Layout The design of the facility layout should consider overall objectives set by the organization. Optimum space needs to be allocated for process and technology. A proper safety measure as to avoid mishaps. Overall management policies and future direction of the organization.