Commerce Exam > Commerce Questions > What are reasons for deficient demand?
Start Learning for Free
What are reasons for deficient demand?
Most Upvoted Answer
What are reasons for deficient demand?
In a two sector closed economy, deficiency of Aggregate Demand (AD) occurs largely due to two factors:
- Reduction in private consumption expenditure : Private expenditure is an important component of AD. Reduction in private consumption expenditure causes a serious deficiency in AD. Private consumption expenditure may reduce owing to several reasons. However, the most important is reduction in propensity to consume or increase in propensity to save.
- Reduction in Investment Expenditure : Investment expenditure is the other important component of AD. Any reduction in investment expenditure implies a reduction in AD. Investment expenditure may reduce in situations of poor business expectations. It happeed in all market economies of the world in 2009.
In a four sector open economy, the following factors also contribute to the deficiency of AD:
- Reduction in Government Expenditure : Government expenditure is of vital significance in welfare economies. However, there could be situations when public enterprises pile up huge losses owing to their inefficiencies. In such situations, instead of making frsh investments, the government may resort to disinvestment.
- Decline in Exports : Decline in exports may occur due to lack of demand in rest of the world. We know, exports are an important component of AD. A fall in exports implies a fall in expenditure on the domestically produced goods and services.
- Rise in Imports : Imports may rise when international prices are lower than the domestic prices. We know, imports are a negative component of AD. Accordingly, a rise in imports leads to a fall in AD.
- Increase in Tax Rates : Increase in tax rates leaves lesser disposable income with the people. It reduces their capacity to spend, even when their propensity to spend remains the same. Lower disposable income means lower level of AD
Community Answer
What are reasons for deficient demand?
Your Answer.
The main reasons for deficient demand are:
1. Decrease in Propensity to consume:
2. Increase in taxes:
3. Decrease in Government Expenditure:
4. Fall in Investment expenditure:
5. Rise in Imports:
6. Fall in Exports:
Thank u.
The main reasons for deficient demand are:
1. Decrease in Propensity to consume:
2. Increase in taxes:
3. Decrease in Government Expenditure:
4. Fall in Investment expenditure:
5. Rise in Imports:
6. Fall in Exports:
Thank u.
|
Explore Courses for Commerce exam
|
|
Similar Commerce Doubts
Top Courses for CommerceView all
What are reasons for deficient demand?
Question Description
What are reasons for deficient demand? for Commerce 2025 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about What are reasons for deficient demand? covers all topics & solutions for Commerce 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What are reasons for deficient demand?.
What are reasons for deficient demand? for Commerce 2025 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about What are reasons for deficient demand? covers all topics & solutions for Commerce 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What are reasons for deficient demand?.
Solutions for What are reasons for deficient demand? in English & in Hindi are available as part of our courses for Commerce.
Download more important topics, notes, lectures and mock test series for Commerce Exam by signing up for free.
Here you can find the meaning of What are reasons for deficient demand? defined & explained in the simplest way possible. Besides giving the explanation of
What are reasons for deficient demand?, a detailed solution for What are reasons for deficient demand? has been provided alongside types of What are reasons for deficient demand? theory, EduRev gives you an
ample number of questions to practice What are reasons for deficient demand? tests, examples and also practice Commerce tests.
|
|
Explore Courses for Commerce exam
|
|
Signup for Free!
Signup to see your scores go up within 7 days! Learn & Practice with 1000+ FREE Notes, Videos & Tests.
|
© EduRev
|
Education Revolution
|
|
Signup to see your scores
go up within 7 days!
Access 1000+ FREE Docs, Videos and Tests
Takes less than 10 seconds to signup