......... is the situation where the equilibrium level of output is less than the full employment of output.

Option 1 -> Excess Supply occurs when quantity supplied exceeds quantity demanded, but doesn't specifically describe equilibrium below full employment.

Option 2 -> Excess Demand occurs when demand exceeds supply, leading to inflationary pressure, opposite to the described situation.

Option 3 -> Deficient Demand is when aggregate demand is insufficient to achieve full employment output, creating a deflationary gap.

Option 4 -> Deficient Supply refers to inadequate production capacity, not the demand-side shortfall described.

Hence, Option 3: Deficient Demand -> This situation is also called a deflationary gap. When aggregate demand in an economy is insufficient to purchase all goods and services that could be produced at full employment level, the equilibrium output settles below the full employment output. This leads to unemployment and underutilization of resources. The gap between actual output and potential (full employment) output represents the deficiency in demand that needs to be addressed through expansionary fiscal or monetary policies. -> correct