Which of the following situations indicates “excess demand” in an economy?
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Deficient Demand \(\Rightarrow\) Deflationary Gap.
- Aggregate demand equals aggregate supply
- Aggregate demand is less than aggregate supply
- Aggregate demand exceeds aggregate supply at full employment
- Aggregate supply exceeds planned expenditure
The Correct Option is C
Solution and Explanation
Step 1: Understanding excess demand.
At full employment, resources are already fully utilized.
Step 2: Effect of higher aggregate demand.
If aggregate demand rises beyond aggregate supply:
- Prices rise.
- Inflationary gap emerges.
- Economy faces demand-pull inflation.
Step 3: Evaluating options.
(A) Represents equilibrium.
(B) Indicates deficient demand.
(C) Correct definition of excess demand.
(D) Indicates underemployment situation.
Step 4: Final conclusion.
Therefore: \[ \boxed{\text{(C) Aggregate demand exceeds aggregate supply at full employment}} \]
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