Question

What is the impact of deficient demand on output, employment, and prices?

With reference to the above question, which of the following statements are correct

Statement 1:- Effect on output: Low level of investment and employment implies a low level of output

Statement 2:- Effect on employment: Because of deficiency of demand, investment level is reduced. Accordingly, the level of employment tends to fall.

Statement 3:- Effect on prices: A fall in prices is the immediate consequence of deficient demand.

Options

• Statement 1, 2 ,3

• Only 1 and 2

• Only 1

• None of the above

Answer 1

Statement 1, 2 ,3

Explanation:

Deficient demand occurs when AD falls short of AS, which corresponds to the economy's full employment level.

1. Effect on output:
   Low investment and employment levels imply low output levels.
2. Effect ori. employment:
   The degree of investment is reduced due to a lack of demand. As a result, employment levels tend to decline.
3. Effect on prices:
   The immediate result of insufficient demand is a drop in pricing.