Problems Of Deficient Demand And Excess Demand — Flashcards

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Deficient demand is a situation in which aggregate demand in the economy falls short of aggregate supply of goods and services at full employment. It means the available output is not fully absorbed b…

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Deficient demand and deflationary gap are the same idea. A deflationary gap exists when aggregate demand is less than aggregate supply at full employment. It is called deflationary because it leads to…

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A negative output gap is another name for deflationary gap. It means actual output is less than potential output, or full capacity output. This happens when the economy is operating below full employm…

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Excess demand is a situation in which aggregate demand is more than aggregate supply at the full employment level. It creates an inflationary gap and an over full employment equilibrium.

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An inflationary gap is the amount by which aggregate demand exceeds the aggregate demand required for full employment equilibrium. It is called inflationary because it leads to a rise in the price lev…

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Inflationary gap is called a positive output gap because actual output is more than capacity output. This happens when demand is very high and production is pushed above the most efficient level.

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The equilibrium level of income under the Keynesian framework need not be at the full employment level. Equilibrium depends on aggregate demand, so the economy may settle at under-employment equilibri…

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Deficient demand leads to under-employment equilibrium. Output falls because aggregate demand is not enough to absorb full employment output, and employment also falls because producers reduce product…