Deficit demand refers to a situation where the actual or equilibrium level of demand for output (AD2) is less than the full employment level of output (AD1). That is, if AD2<AD1 (situation of Deficit Demand)

In the figure, AD1 and AS represents the aggregate demand curve and aggregate supply curve. The economy is at full employment equilibrium at point ' E ', where AD1 intersects AS curve. At this equilibrium point, or represents the full employment level of output and EY is the aggregate demand at the full employment level of output.
Let us suppose that, the actual aggregate demand for output is only CY, which is lower than EY. This implies that actual aggregate output demanded by the economy CY falls short of the potential (full employment) aggregate output EY. Thus, the economy is facing a deficiency in demand, This situation is termed as deficit demand.
Bank rate refers to the rate at which the central bank provides loans to the commercial banks. In case of deficit demand, central bank reduces the bank rate, which reduces the cost of borrowings for the commercial banks. This implies that people can get loans at cheap rates from the commercial banks. This increases the demand for loans and credits in the market, Therefore, the consumption expenditure increases and finally the aggregate demand increases.