Question

Distinguish low demand and excess demand

Answer 1

$\huge{\underline{ \overline{ \mid{ \mathfrak{ \red{ \: \: ANSWER\: \: } \mid}}}}}$

$\underline{ \text{ \: \: Difference \: between \: Low \: Demand \: and \: Excess \: demand \: \: }}$

$\underline{ \mathbb{ \red{ \: 1. \: MEANING \: : \mapsto}}}$

Low demand refers to a situation when AD is less than AS corresponding to full employment level in the economy.

On the other hand, excess demand is a situation when AD is more than AS corresponding to full employment level in the economy.

$\underline{ \mathbb{ \red{ \:2. \: INFLATIONARY \: \: or \: \: DEFLATIONARY \: \: GAP \: : \mapsto \: \: }}}$

Low demand leads to deflationary gap.

Whereas, excess demand leads to inflationary gap.

$\underline{ \mathbb{ \red{ \: 3.\: EQUILIBRIUM \: \: LEVEL \: : \mapsto</p><p>}}}$

Low demand indicates under employment equilibrium.

But, excess demand indicates over full employment equilibrium.

$\underline{ \mathbb{ \red{ \: 4. \: IMPACT \: \: ON \: \: PRICE \: : \mapsto}}}$

Low demand leads to deflation, i.e., it results in fall in general price level.

On the other hand, excess demand leads to inflation, i.e., it results in rise in general price level.

$\underline{ \mathbb{ \red{ \: 5. \: REASON \: : \mapsto}}}$

Low demand occurs dueto shortage of anticipated expenditure.

Whereas, excess demand occurs due to excess of anticipated expenditure.