Question

In the Keynesian economy, the condition of deficient demand is called by which of the following names?

• A. Full employment equilibrium
• B. Under-employment equilibrium
• C. Both (A) and (B)
• D. None of these

Hint:

In the Keynesian model, under-employment equilibrium occurs when there is deficient demand and some resources are left idle, causing unemployment.

Answer 1

The Correct Option is B

Step 1: Understanding Deficient Demand:
In Keynesian economics, deficient demand occurs when the total demand for goods and services in the economy is insufficient to fully utilize the economy’s productive capacity. This leads to unemployment and unused resources.
Step 2: The Concept of Under-Employment Equilibrium:
- Under-employment Equilibrium (Option B): In a situation of under-employment equilibrium, the economy operates below its full potential, meaning that some resources (such as labor) are underutilized, resulting in unemployment. The total demand is insufficient to employ all the resources available, leading to an equilibrium with unemployment.
- Full Employment Equilibrium (Option A): Full employment equilibrium occurs when all resources are fully employed, and the economy is at its potential output. This is not related to deficient demand, as there is no unemployment in this case.
- Option (C) Both (A) and (B): Since full employment equilibrium is not associated with deficient demand, this option is incorrect.
Step 3: Conclusion and Answer:
The correct answer is (B) because deficient demand leads to under-employment equilibrium in the Keynesian model, where the economy is not fully utilizing its resources, leading to unemployment.