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Problems Of Deficient Demand And Excess Demand

ICSE · Class 12 · Economics

Quick revision notes for Problems Of Deficient Demand And Excess Demand — ICSE Class 12 Economics. Key concepts, formulas, and definitions for last-minute revision.

70 questions36 flashcards5 concepts

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Key Topics to Revise

1

1. Core Meaning of Demand Imbalances

  • The equilibrium level of income under Keynesian framework need not be at full employment level.
  • If aggregate demand is less than full-employment aggregate supply, the economy reaches under-employment equilibrium.
  • This situation is called deficient demand.
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2. Diagram-Based Understanding

  • In the excess demand diagram, full employment output = ON.
  • Required aggregate demand at full employment = BM.
  • Current aggregate demand = AM.
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3. Causes and Consequences of Deficient Demand

  • Causes of deficient demand include credit contraction, cut in government expenditure, rise in taxes, and rise in propensity to save.
  • Unsold inventory piles up with producers beyond the desired level.
  • Producers plan to cut production in the next round.
4

4. Causes and Consequences of Excess Demand

  • Causes of excess demand include increase in private investment due to credit facilities, increase in money supply through deficit financing, rise in consumption demand due to higher MPC or lower MPS,
  • Excess demand creates many problems in the economy.
  • Output of goods and services remains constant in excess demand.

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Full Notes

Key Concepts

A situation where aggregate demand fallsThe gap that appears when aggregateA situation where aggregate demandThe amount by which aggregate demandThe revenue and expenditure policy

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