##
**
Excess Demand
**

It refers to a situation where

Aggregate Demands is more than Aggregate Supply

at full employment level

*
Normally
*

AD=AS at equilibrium Level

Excess Demand

AD > AS at equilibrium Lebel

## Note

Excess Demand leads to inflationary gap

Inflationary gap is a situation where

Actual Aggregate Demand exceeds Aggregate Supply

at full employment level

##
**
Graph Presentation
**

On X Axis, we represent Income or Output

On Y Axis, we show Demand

It can be seen that

AS Curve is Positively Sloping starting from Origin making an angle of 45 degree with x axis

AD Curve is also starting from Point C

Both AD and AS Curve intersect at Point E which is the equilibrium Point

Now, due to excess demand AD Curve shifts upwards to AD'

This leads to creation of Inflationary Gap (Represented by EF)

##
**
What is Inflationary Gap?
**

It is the gap between

AD AND AS

at

at full employment level

##
**
Effect of inflationary Gap/Excess Demand
**

It leads to Increase in General Price level in an economy

This is because Aggregate Demand increases but Aggregate Supply remains constant

### NCERT Questions

**
No questions in this part
**

### Other Books

#### Question 1

**
Does the situation of excess demand arise?
**

**
How do you measure it?
**

**
Show it with the help of a diagram.
**

It refers to a situation where Aggregate Demands is more than Aggregate Supply at full employment level.

*
Normally
*

AD=AS at equilibrium Level

Excess Demand

AD > AS at equilibrium Lebel

##
**
Graph Representation
**

On X Axis, we represent Income or Output

On Y Axis, we show Demand

It can be seen that

AS Curve is Positively Sloping starting from Origin making an angle of 45 degree with x axis

AD Curve is also starting from Point C

Both AD and AS Curve intersect at Point E which is the equilibrium Point

Now, due to excess demand AD Curve shifts upwards to AD'

This leads to creation of Inflationary Gap (Represented by EF)

#### Question 2

**
Explain deflationary gap
**

It is the gap between Aggregate Demand at full employment level and Actual Aggregate Demand .

###
**
Effect of Deflationary Gap/Deficient Demand
**

It leads to decrease in General Price level in an economy

This is because Aggregate Demand decreases but Aggregate Supply remains constant

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