Deficient demand and excess demand can be distinguished from each other in the following manner.
(i) Deficient demand is a situation, which occurs due to excess of aggregate supply of output over the aggregate demand for output at the level of full employment. On the other hand, excess demand is a situation, which occurs due to the excess of aggregate demand for output over the supply of output at the level of full employment.
(ii) Deficient demand generates deflationary gap. But excess demand generates inflationary gap.
(iii) Deficient demand leads to a fall in output, employment, and price level. But excess demand leads only to an increase in the price level. Between the two – excess demand and deficient demand, the letter is worse.