In an economy aggregate demand is greater than aggregate supply. Explain changes that will take place in this economy.

1.    When AS > AD (or when AD < AS). When aggregate supply (output) is more than ex-ante aggregate demand, it means consuming households are saving more. This will result in unplanned undesired increase in inventories of unsold stock. As excess inventories accumulate, firms will reduce use of factors of production and cut down production until aggregate supply (output) and aggregate demand are in equilibrium.
2.    When AS < AD (or when AD > AS). When output is less than aggregate demand, it means consuming households are saving less. This will result in unplaned reduction in inventories of unsold stock. Firms will expand production by hiring more workers until AS and AD once again become equal, i.e., until equilibrium is restored (AD = AS).
In short, firms reduce output as long as AS>AD and increase output as long as AS<AD until equilibrium is restored.