Question

Could we ever achieve an unemployment rate below full employment? What problems might we encounter if it did.

Answer 1

This problem is concerned with macroeconomic problem which arises due to lack of demand in the economy as a result producers decrease production as a result unemployment increases in the economy.

several economist presented there views under this concept.two major thoughts are

• CLASSICAL VIEW- classical economist believed that in long run there is a full employment in the economy and this is the general feature of the economy. they believed in wage flexibility and thus they defined that if there is unemployment in the economy then it would automatically restore to the equilibrium point without making any special effort.
• KEYNESIAN VIEW- Keynesian suggested a different concept. he said that AD=AS without achieving the full employment level. it means that in economy at beginning unemployment persist and full employment is not a general feature of any economy. government needs to make efforts to gain the full employment level in the economy.

DIAGRAM OF KEYNESIAN CONCEPT

As we can see in the diagram the initial equilibrium point E to E1 requires increase in demand which can be done by increasing government spending,and economy will face underemployment in the economy.,

ADVERSE IMPACTS OF UNDER FULL OR UNDEREMPLOYMENT-

1. RECESSION
2. INCREASING UNEMPLOYMENT
3. VICIOUS CIRCLE OF POVERTY
4. DEFLATIONARY /RECESSIONARY GAP
5. LOW STANDARD OF LIVING