We know that Equilibrium level of income and employment is determined when AD curves intersects the AS curve. If the equilibrium level exceeds the full employment level, then there is Excess Demand in the economy. However if Equilibrium level falls short of full employment level, then it is a situation of Deficient Demand. According to Keynes :- The Equilibrium level of employment may or may not be the full employment level. It means Equilibrium level may exceed or fall short of full employment level. What is Excess Demand? Excess demand refers to the situation when aggregate demand is more than the aggregate supply corresponding to full employment level of output in the economy. It is the excess of anticipated expenditure over the value of full employment output . What is Inflationary Gap? Inflationary Gap refers to the gap by which actual aggregate demand exceeds the aggregate demand required to establish full employment Equilibrium. Excess demand gives rise t...
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