Effect on Output

Because demand is less, there will be excess inventory (stock) with firms

Hence, they will produce less (as there is already stock with them)


Effect on Employment

It causes involuntary employment

People want to work and earn and are capable but do not find job


Effect on General price Level

It leads to decreases in prices of commodity

This is because of deflationary gap

(as price of commodity is more than supply)

Because demand is less, price of commodity falls

Impact of Deficit Demand - Teachoo.JPG


Impact of Deficit Demand Effect on Output Effect on Employment Effect on General price Level Less Production (Due to less demand, there is excess inventory with firms Causes Involuntary unemployment Decrease in Prices (Due to deflationary gap)

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Maninder Singh

CA Maninder Singh is a Chartered Accountant for the past 14 years and a teacher from the past 18 years. He teaches Science, Economics, Accounting and English at Teachoo