EconomicsMacro Economics: Determination of Income and Employment

Deficient Demand Occurs when : (A) Equlibrium level of output is less…

Deficient Demand Occurs when :

(A) Equlibrium 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 :

Answer & explanation

Correct answer: option 1

The correct answer is (A), (B), (D), (E) only.

Full employment level of income is that level of income where all the factors of production are fully employed in the production process. Equilibrium only means that if left to itself the level of income in the economy will not change even when there is unemployment in the economy. The equilibrium level of output may be more or less than the full employment level of output. If it is less than the full employment of output, it is due to the fact that demand is not enough to employ all factors of production. This situation is called the situation of deficient demand. It leads to decline in prices in the long run.

Deficient demand occurs when aggregate demand (AD) is less than aggregate supply (AS). This means that there is not enough demand for goods and services in the economy to purchase all of the output that businesses are producing. As a result, businesses are forced to cut back on production, which leads to unemployment and lower output.

Therefore, all of the options listed in the answer choice except for (C) are correct descriptions of deficit demand.

Option (C) is incorrect because deficit demand does not necessarily lead to a decrease in output.