Question

What is meant by "Full Employment"?

Hint:

Full employment is not 100% employment. It's the highest level of employment an economy can sustain without causing significant inflation.

Answer 1

Step 1: Understanding the Concept:
The question asks for the definition of "Full Employment," a key goal of macroeconomic policy.

Step 2: Detailed Explanation:
Full Employment is a macroeconomic situation in which all available labor resources are being used in the most efficient way possible. It refers to a situation where all those who are able and willing to work at the prevailing wage rate are able to find employment.
It is important to note that full employment does not mean zero unemployment. Even at the full employment level, there will always be some amount of natural unemployment, which includes: \begin{itemize}[noitemsep] \item Frictional Unemployment: Temporary unemployment as people move between jobs. \item Structural Unemployment: Unemployment due to a mismatch between the skills of workers and the skills required for available jobs. \end{itemize} Therefore, full employment corresponds to a situation where there is no cyclical or deficient-demand unemployment.

Step 3: Final Answer:
Full employment is a state of the economy where all persons who are willing and able to work at the existing wage rate get work, allowing for a natural rate of frictional and structural unemployment.