12 class excess and deficient demand

3. To make the students to understand about the
equilibrium level of income and employment in an
economy.
To acquaint the students with the concept of Excess
demand and deficient demand in the economy.
To develop the reasoning among the students to locate
the equilibrium point if there is change in Aggregate
Demand.
To make them understand the consequences of Excess
and deficient demand.

4. Previous knowledge testing
 What is Aggregate demand?
 What is the formula of aggregate demand?
 On what factors Aggregate demand
depends?
 What is aggregate supply?.
 What is the formula of aggregate Supply?
 Where the equilibrium of an economy take
place?

5. E
X
P
E
N
D
I
T
U
R
E
O
INCOME/ OUTPUT/ EMPLOYMENT
Q
AD1
AD
AS
E
E1
EXCESS DEMAND

6. EXCESS DEMAND
 . EXCESS DEMAND is
the situation where
aggregate demand is
more than aggregate
supply corresponding
to full employment
level.
 AD>AS : CORRESPONDING TO
FULL EMPLOYMENT LEVEL.

7. EXCESS DEMAND
 . EXCESS DEMAND
IS A SITUATION
WHERE
AGGREGATE
DEMAND IS MORE
THAN ITS FULL
EMPLOYMENT
LEVEL.

8. EXCESS DEMAND
 . Excess demand is
the situation
where aggregate
demand is more
than that level of
aggregate supply
which is required
for full
employment level

9. REASONS FOR EXCESS DEMAND
 INCREASE IN HOUSE HOLD
CONSUMPTION EXPENDITURE
 INCREASE IN GOVT’S EXPENDITURE
 INCREASE IN INVESTMENT
EXPENDITURE
 INCREASE IN EXPORTS
 DECREASE IN IMPORTS

10. EXCESS DEMAND
 When AD increases beyond its full
employment level, output and
employment remains constant.
 This implies a situation of Inflation.

11. E
X
P
E
N
D
I
T
U
R
E
O
INCOME/ OUTPUT/ EMPLOYMENT
Q
AD
AS
E
DEFICIENT DEMAND
ADO
EO
QO

12. DEFICIENT DEMAND
 DEFICIENT DEMAND is
the situation where
aggregate demand is less
than aggregate supply
corresponding to full
employment level.
 AD<AS :
CORRESPONDING TO
FULL EMPLOYMENT
LEVEL.

13.  DEFICIENT
DEMAND IS A
SITUATION
WHERE
AGGREGATE
DEMAND IS LESS
THAN ITS FULL
EMPLOYMENT
LEVEL
DEFICIENT DEMAND

14.  DEFICIENT
DEMAND is the
situation where
aggregate demand
is less than that
level of aggregate
supply which is
required for full
employment level
DEFICIENT DEMAND

15. REASONS FOR DEFICIENT DEMAND
 DECREASE IN HOUSE HOLD
CONSUMPTION EXPENDITURE
 DECREASE IN GOVT’S EXPENDITURE
 DECREASE IN INVESTMENT
EXPENDITURE
 DECREASE IN EXPORTS
 INCREASE IN IMPORTS

16. In a situation of Deficient Demand the
economy is driven to state of low level of
output, income and employment.
It will create a situation of Deflation in the
economy

17. RECAPITULATION QUESTIONS:
 What is excess demand?
 Why the situation of excess demand arises?
 What are the consequences of excess demand?
 What is deficient demand?
 Why the situation of deficient demand arises?
 What are the consequences of deficient demand?

19.  Deficient Demand
 In deficient demand
AD<AS corresponding
to full employment.
 Deficient demand
generates deflationary
gap.
 In this state
output,employment
and prices tend to
reduce.
 Excess Demand
 In excess demand
AD>AS corresponding
to full employment.
 Excess Demand
generates inflationary
gap.
 In this prices tend to
increase but output and
employment remain
same.