What is deficient demand in an economy? What is its impact on output, employment and prices?
Deficient demand refers to the situation when AD is short of AS corresponding to full employment in the economy.
(i) Effect on output Low level of investment and employment implies low level of output.
(ii) Effect on employment Because©f deficiency of demand, investment level is reduced. Accordingly, level of employment tends to fall.
(iii) Effect on prices Fall in prices is the immediate consequence of deficient demand.