Four factors that will restore equilibrium?

1. Changes in income:

If aggregate expenditure falls below the equilibrium level, the government can increase its spending or reduce taxes to increase disposable income and hence aggregate expenditure. Conversely, if aggregate expenditure exceeds the equilibrium level, the government can decrease its spending or raise taxes to decrease disposable income and hence aggregate expenditure.

2. Changes in interest rates:

The central bank can use monetary policy to change interest rates and influence aggregate expenditure. A decrease in interest rates makes borrowing cheaper and encourages businesses and consumers to spend more, while an increase in interest rates makes borrowing more expensive and discourages spending.

3. Exchange rate adjustments:

A depreciation of the domestic currency makes domestic goods cheaper relative to foreign goods, encouraging exports and discouraging imports, thereby increasing aggregate expenditure. Conversely, an appreciation of the domestic currency makes domestic goods more expensive relative to foreign goods, discouraging exports and encouraging imports, thereby decreasing aggregate expenditure.

4. Automatic stabilizers:

These are built-in economic mechanisms that help stabilize the economy during fluctuations. For example, unemployment benefits automatically increase when unemployment rises, providing income support to unemployed workers and helping to maintain aggregate expenditure. Conversely, personal income taxes automatically decrease when income falls, leaving individuals with more disposable income and supporting aggregate expenditure.