About Excess and deficient demand

Deficient Demand And Its Related Concepts

1. Deficient Demand or Deflationary Gap:
(a) When in an economy, aggregate demand falls short of aggregate supply at full employment level, the demand is said to be a deficient demand.b) Deflationary gap is the gap showing Demand
deficient of current aggregate demand over ‘aggregate supply at the level of full employment’. It is called deflationary because it leads to deflation (continuous fall in prices).
(c) Let us suppose that an imaginary economy by employing all its available resources can produce 10,000 quintals of rice. If aggregate demand of rice is, say 8,000 quin tals, this demand will be called a deficient demand and the gap of 2000 quintals will be called as deflationary gap. Clearly here equilibrium between AD and AS is at a point less than level of full employment. Keynes called it an under employment equilibrium.
2. Reasons or causes for deficient demand: The main reasons for deficient demand are apparently the decrease in four components of aggregate demand:
(a) Decrease in household consumption demand due to fall in propensity to consume.
(b) Decrease in private investment demand because of fall in credit facilities.
(c) Decrease in public (government) expenditure.
(d) Decrease in export demand.
(e) Decrease in money supply or decrease in disposable income.