Based on the following diagram answer the question :

The gap E'F in the diagram indicate ______________.

Excess demand

The correct answer is option (3) : Excess demand

The gap E'F represents a situation of excess demand in the market.

When autonomous investment increases, the  $AD^1$  line shifts in parallel upwards and assumes the position $AD^2$ . The value of aggregate demand at output Y1 is Y1F, which is greater than the value of output OY1 = Y1* E' by an amount E'F.  E'F measures the amount of excess demand that emerges in the economy as a result of the increase in autonomous expenditure.