Deficient demand leads to _____________ and can be corrected through _________

Which of the following options suits best in the above blank?

Deflationary gap, fiscal and monetary policy

The correct answer is option 4: Deflationary gap, fiscal and monetary policy

Here's why:

• Deficient demand leads to a deflationary gap, which occurs when aggregate demand is insufficient to achieve full employment and potential output in the economy.
• This gap can be corrected through fiscal policy (such as increasing government spending or reducing taxes) and monetary policy (such as lowering interest rates or increasing money supply) to stimulate demand and close the gap.