Deficit Demand Occurs when :

(A) Equilibrium level of output is less than full employment level

(B) When AD < AS (aggregate Demand less than Aggregate Supply)

(C) When output decreases

(D) Demand is not enough to employ all factors of production

(E) Prices will decline in the long run

Choose the correct answer from the options given below :

(A), (B), (D), (E) only

The correct answer is option (1) : (A), (B), (D), (E) only

Deficit demand occurs when aggregate demand is less than aggregate supply at the full employment level of output, leading to underutilization of resources and unemployment. Let us analyze each statement:

1. Equilibrium level of output is less than full employment level is correct because when there is deficit demand, the economy operates below full employment output, meaning some resources, including labor, remain unused.

2. When aggregate demand is less than aggregate supply is correct because this is the fundamental cause of deficit demand, as lower demand results in unsold goods and reduced production.

3. When output decreases is incorrect because deficit demand does not directly cause output to decrease. Instead, it leads to underutilization of resources and falling prices. Output may decrease later if producers cut production in response to lower demand.

4. Demand is not enough to employ all factors of production is correct because when demand is low, firms do not require as many workers, leading to unemployment and idle resources.

5. Prices will decline in the long run is correct because when demand is lower than supply, prices tend to fall, leading to deflationary pressures.