_____ is the situation where the equilibrium level of output is less than the full employment of output.

Deficient Demand.

The correct answer is Option (3) → Deficient Demand.

Deficient demand refers to a situation where aggregate demand is not sufficient to buy all the goods and services that could be produced at full employment level of output. As a result, the equilibrium output is less than full employment output, leading to unemployment and underutilisation of resources.