Meaning of deficient demand. When in an economy aggregate demand falls short of aggregate supply at full employment, the demand is said to be a deficient demand and the difference (gap) is called deflationary gap. Deficient demand gives rise to deflationary gap which causes income, output and employment to full and thus pushes the economy to an under-employment equilibrium. As a result some of the resources including labour remain partly unutilised showing under-employment. In other words, it means that the demand is not sufficient or adequate to eliminate involuntary unemployment. It indicates that there are people who are willing to take up jobs at the prevailing wage rate but the economy cannot provide jobs to them because current AD falls short of aggregate demand required to reach the level of full employment. Thus deficient demand is a situation of under-employment equilibrium.
Impact: Deficient demand leads to fall in prices which, in turn, leads to fall in output and employment. Again a persistent fall in deficient demand leads to state of depression in the economy.