Question

Explain the concept of the full employment level of output. How is this concept different

from that of the equilibrium level of output?

Answer 1

Full employment level of output is a situation in an economy where all the available resources can be fully utilised. It is possible to attain higher production level in the long run under full employment level. Factors of production like land, labour, capital are efficiently used in full employment level It is also expected that unemployment level is zero at full employment level but in reality it is not possible.A minimum of 3 % unemployment level exists in an economy This type of unemployment exists because when due to more production opportunities, people are looking for job. But it takes some time for employment. In the full employment level which is possible in the long run, long run aggregate supply curve is vertical.

Equilibrium level of output is achieved when aggregate level of supply is equal to the aggregate level of demand. Here the market forces of demand and supply intersect to achieve equilibrium.

Here, Y = C+I+G

Where, Y = aggregate income

C= consumption

I = investment expenditure

G = government expenditure

As far as full employment is concerned all factors are fully utilised. In case of equilibrium level,there can be cases where demand is less than the output.But when aggregate supply equals aggregate demand it is a case of equilibrium level of output. This is because whatever output is produced is demanded in the economy.