Question

Deficient demand is a situation in which:

Options

• Aggregate demand equals aggregate supply at the full employment level of output

• Aggregate demand is more than aggregate supply at the full employment level of output

• Aggregate supply exceeds aggregate demand at zero level of output

• Aggregate demand is less than aggregate supply at the full employment level of output

Answer 1

Deficient demand exists when aggregate demand is less than aggregate supply at the full employment level of output. Fiscal policy corrects it by increasing government expenditure or reducing taxes.