The situation when effective demand is the only constraint on output. This is likely to be the case only during a deep slump. At most times there are shortages of particular skills or types of equipment which restrict output in some parts of the economy, even when output in other parts is demand-determined. The ability to fill shortages by the use of imports and inward migration of particular types of labour means that an open economy is closer to having its output demand-determined than is a closed economy.
Reference: Oxford Press Dictonary of Economics, 5th edt.
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