Step 1: Understanding the Concept:
"Excess Demand" refers to a situation in macroeconomics where the planned Aggregate Demand (\(AD\)) for goods and services in the economy is greater than the Aggregate Supply (\(AS\)) at the full employment level.
Full employment is a state where all those who are able and willing to work at the prevailing wage rate find work; it implies the economy is utilizing its production capacity to the maximum.
Step 2: Detailed Explanation:
In the Keynesian framework, when \(AD\) exceeds \(AS\) at the full employment level:
1. The economy has already reached its maximum potential output (Potential GDP).
2. No further increase in production is possible because all resources (labor, land, capital) are fully employed.
3. Consequently, the high demand exerts upward pressure on the general price level.
4. This results in the creation of an "Inflationary Gap."
The gap represents the amount by which actual aggregate demand exceeds the aggregate demand required to maintain full employment equilibrium.
Let's evaluate the options:
- (A) \(AD = AS\): This is the Equilibrium point.
- (B) \(AD<AS\): This is "Deficient Demand," leading to a "Deflationary Gap" and unemployment.
- (D) \(AS>\text{Expenditure}\): This is essentially the same as Deficient Demand.
Step 3: Final Answer:
The condition where \(AD\) exceeds \(AS\) specifically at the full employment level is the defining characteristic of "excess demand."