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Excess and deficient demand by UK

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Umesh Bhardwaj

This document discusses excess demand and deficient demand in an economy. Excess demand occurs when aggregate demand is greater than aggregate supply at full employment levels, leading to inflation as output and employment remain constant. Deficient demand occurs when aggregate demand is less than aggregate supply at full employment, resulting in deflation as output, employment, and prices decrease. The document seeks to help students understand these concepts and how equilibrium is achieved in an economy.

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Excess and deficient demand by UK
Excess and deficient demand by UK
?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.
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?
E X P E N D I T U R E O INCOME/ OUTPUT/ EMPLOYMENT Q AD1 AD AS E E1 EXCESS DEMAND
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.
EXCESS DEMAND ? . EXCESS DEMAND IS A SITUATION WHERE AGGREGATE DEMAND IS MORE THAN ITS FULL EMPLOYMENT LEVEL.
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
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
EXCESS DEMAND ? When AD increases beyond its full employment level, output and employment remains constant. ? This implies a situation of Inflation.
E X P E N D I T U R E O INCOME/ OUTPUT/ EMPLOYMENT Q AD AS E DEFICIENT DEMAND ADO EO QO
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.
? DEFICIENT DEMAND IS A SITUATION WHERE AGGREGATE DEMAND IS LESS THAN ITS FULL EMPLOYMENT LEVEL DEFICIENT DEMAND
? 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
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
?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
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?
Excess and deficient demand by UK
? 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.

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Excess and deficient demand by UK

  • 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?
  • 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.
  • 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.