Question

Analyse the distinction between deficient demand and excess demand.

Answer 1

Sr. No.	Basis	Deficient demand	Excess demand
1.	Meaning	When aggregate demand (AD) is less than what is needed to maintain full employment.	When AD is more than what the economy can supply at full employment.
2.	Level of Output	Less than full employment level.	Equal to full employment level (output can’t increase further).
3.	Level of Employment	Unemployment rises (especially cyclical unemployment).	Employment is already at maximum (may cause labour shortages).
4.	Effect on Prices	Leads to deflation or falling prices.	Leads to inflation (demand-pull inflation).
5.	Impact on Resources	Resources are underutilised (idle labour, idle machines).	Resources are overutilised, causing strain.
6.	Government Action Needed	Expansionary policy: Increase government spending, cut taxes.	Contractionary policy: Reduce spending, raise taxes.
7.	Example	Great depression of the 1930s.	Rapid economic booms, e.g., war-time economies.