Identify the statement that stands true during deficient demand :

(A) Actual output falls short of potential output
(B) Potential output falls short of actual output
(C) Actual demand is less than expected demand
(D) Expected demand is less than actual demand

Choose the correct answer from the options given below :

(A) and (C) only

The statement that stands true during deficient demand is: (A) and (C) only

• (A) Actual output falls short of potential output: This is true because during deficient demand, actual production (output) is lower than the economy's potential production.

• (C) Actual demand is less than expected demand: This is also true during deficient demand. The actual demand for goods and services is less than what was expected, leading to an economic gap.

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. On the other hand, if the equilibrium level of output is more than the full employment level, it is due to the fact that the demand is more than the level of output produced at full employment level. This situation is called the situation of excess demand. It leads to rise in prices in the long run.