Explain excess and deficient demand with help of diagram. What are the main
measures to correct excess demand. (answer in 200 words)
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In the diagram, AB represents the deflationary gap or deficient demand. Deficient demand refers to the situation when aggregate demand is short of aggregate supply corresponding to full employment level in the economy. Aggregate supply being perfectly elastic, it converges with aggregate demand at a lower level of output lower than the full employment level of output in the economy. This is a situation of underemployment equilibrium.
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