A) The full employment level of RGDP is the absolute highest level of output that the...

A) The full employment level of RGDP is the absolute highest level of output that the economoy can produce with its existing labor force, technology and amount of capital equipment structures. Agree or Disagree and why.

B) Why do economists estimate that the economy has attained full employment when the measured rate of unemploymnet is as high as 4% or possible 4.5%?

Expert Solution

A)

Full employment does not mean 100 % absence of unemployment. Full employment denotes 4 -5 % unemployment rates. hence, we can say that level of RGDP is not absolute highest level of output that economy can produce with existing resources. Economy can produce more output by increasing employment rate which is close to 100 %. Hence, we disagree with this statement.

B)

Unemployment rate somewhere between 4 to 4.5% means economy is operating at full employment level. Unemployment rate of 4 to 5 % is caused by the following factors:

Frictional unemployment: It is due to time taken by workers to find new job. It is temporary.
Structural unemployment: It is caused by the change in structure of economy, workers are rendered unemployed when demand for specific skills get reduced. But gradually, workers learn new skills and get absorbed.

Thus, these reasons are temporary and unemployment caused by these factors is not considered.

Rahul Sunny answered 2 years ago

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