Determination of Income and Employment

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Deficient Demand: It refers to that situation in an economy when the AD falls short of AS at full employment level at a given unit of time. Deficient Demand causes deflationary gap i.e. When in an economy aggregate demand is for a level of output that is less than the 'full employment level of output'.
Diagrammatic Presentation:

Important Measures to Control Situation of Deficient Demand:

1. Fiscal Policy: Fiscal policy is the expenditure and revenue (tax) policy of the government to accomplish the desired objectives. Tools of fiscal policy are:
   (i) Expenditure Policy (ii) Revenue Policy  (iii) Public Borrowing (iv) Deficit Financing
2. Monetary Policy: It is the policy of the central bank of a country to control money supply and credit in the economy. Measures of Monetary Policy:
   Quantitative Measures:
   (i) Bank Rate (ii) Open Market Operations (iii) Cash-Reserve Ratio (iv) Statutory Liquidity Ratio (SLR).
   Qualitative Measures:
    (i) Moral Suasion (ii) Margin Requirements (iii) Rationing of Credit (iv) Direct Action.