Class 12 Macro Economics Notes · CBSE
Comparison of Excess and Deficient Demand
9.3 Comparison of Excess and Deficient Demand — side-by-side analysis of economic imbalances, their gaps, and impacts. CBSE Class 12 Macroeconomics notes with comparison table.
Last updated: 22 Aug 2026
Notes
Excess Demand vs Deficient Demand
Both situations represent economic imbalances, but they differ fundamentally in their causes, gaps, and impacts.
| Basis | Excess Demand | Deficient Demand |
|---|---|---|
| Meaning | ✗AD is more than AS corresponding to the full employment level in the economy. | ✗AD is less than AS corresponding to the full employment level in the economy. |
| Gap | ✗Leads to Inflationary Gap. | ✗Leads to Deflationary Gap. |
| Equilibrium Level | ✗Indicates over full employment equilibrium. | ✗Indicates underemployment equilibrium. |
| Reason | ✗Occurs due to excess of anticipated expenditure — rise in consumption, investment, etc. | ✗Occurs due to shortage of anticipated expenditure — fall in consumption, investment, etc. |
| Impact on Output & Employment | ✗Does not affect output and employment — economy is already at full employment. | ✗Leads to a fall in output and employment due to shortage of aggregate demand. |
| Impact on Price | ✗Leads to inflation — a rise in the general price level. | ✗Leads to deflation — a fall in the general price level. |
Key Takeaways
Key Takeaways
- Both excess and deficient demand are harmful for economic growth — they give rise to trade cycles.
- Excess demand → Inflationary Gap → Over full employment equilibrium → Inflation.
- Deficient demand → Deflationary Gap → Underemployment equilibrium → Deflation and unemployment.
- Neither situation increases output — excess demand cannot push output beyond full employment, and deficient demand reduces it below full employment.
- Policy measures (fiscal and monetary) are needed to correct both situations and maintain economic stability.