Deficient demand produces adverse effects upon employment, output and the price level in the following manner.
(a) Impact on employment:
If aggregate demand is less than aggregate supply, entire amount of goods produced in an economy is not sold. This leads to glut (or over production). Therefore, producers of goods cut production and reduce investment. Consequently, unemployment problem becomes rampant.
(b) Impact on Output:
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When aggregate demand is less than aggregate supply, producers are not able to sell the entire output produced in the economy during a given period. Therefore, the reduce the volume of production of output. Thus, deficient demand is responsible for low output in an economy.
(c) Impact on Price Level:
When aggregate demand is less than aggregate supply, price level tends to fall. Unless deflationary gap is removed, price level continues to decline. Decline in price level leads to a fall in the rate of profit. Continuous fall in rate of profit leads to a decline in the volume of private investment. Consequently, problem of unemployment becomes rampant; income and output become low and the country becomes poorer.