Deficit Demand
It refers to a situation where
Aggregate Demands is less than Aggregate Supply
at full employment level
Normally
AD=AS at equilibrium Level
Deficit Demand
AD < AS at equilibrium Level
Note
Deficit Demand leads to Deflationary gap
Deflationary gap is a situation where
Actual Aggregate Demand is less than 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 deficit demand AD Curve shifts downwards to AD'
This leads to creation of Deflationary Gap (Represented by EF)
What is 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
