Chapter-9: Deficient Demand, Excess Demand and its Corrective Measures
It refers to the situation when aggregate Demand (AD) is short of aggregate supply (AS) corresponding to full employment in the economy.
AD < AS
In other words, Ad in the economy is less than what is required to maintain full employment. Deficient demand leads to full in general price level and results in deflation.
The extent to which current aggregate Demand falls short of the actual aggregate demand required for full employment level, is termed as deflationary gap.
Deflationary gap is equal to the difference between the actual level of aggregate demand and the level of aggregate demand to establish full employment equilibrium.
It measures the size of deficient demand.