Equilibrium level of national income:
The equilibrium level of national income is determined by the intersection of aggregate demand (AD) and aggregate supply (AS) in an economy. The AD-AS approach is a useful tool to analyze the factors that influence the level of national income and output.

1. Aggregate Demand (AD):
Aggregate demand represents the total spending on goods and services in an economy at a given price level. It is composed of four components: consumption (C), investment (I), government spending (G), and net exports (NX). AD is represented by the downward-sloping AD curve in the AD-AS diagram.

2. Aggregate Supply (AS):
Aggregate supply represents the total quantity of goods and services that producers are willing and able to supply at a given price level. AS is influenced by factors such as technology, labor market conditions, and the availability of resources. AS is represented by the upward-sloping AS curve in the AD-AS diagram.

3. Equilibrium:
The equilibrium level of national income occurs where AD intersects AS. At this point, the quantity of goods and services demanded equals the quantity supplied, resulting in a stable equilibrium. The equilibrium level of national income can be seen as the level of output where the economy is operating at full employment.

4. AD > AS:
If aggregate demand (AD) exceeds aggregate supply (AS), there will be excess demand in the economy. This leads to an increase in prices and inflationary pressures. In the AD-AS diagram, the AD curve shifts to the right, indicating an increase in AD. As a result, the equilibrium level of national income rises, along with the price level.

5. Consequences of AD > AS:
When AD exceeds AS, there are several consequences:

- Inflation: Excess demand puts upward pressure on prices, leading to inflationary tendencies in the economy.
- Output gap: The gap between actual and potential output widens, indicating a shortfall in supply to meet the demand.
- Resource allocation: Scarce resources may be allocated inefficiently, as producers struggle to meet the increased demand.
- Macroeconomic instability: The imbalance between AD and AS can lead to economic instability, as it creates volatility in prices and output levels.

In summary, the equilibrium level of national income is determined by the intersection of AD and AS in the AD-AS diagram. If AD exceeds AS, there will be excess demand, resulting in inflationary pressures and a widening output gap. Understanding these dynamics is crucial for policymakers to maintain a stable and balanced economy.