Question

What is meant by Full Employment?

Hint:

Full employment $\neq$ zero unemployment; it excludes only the cyclical, demand-deficient part.

Answer 1

Concept: In macroeconomics, full employment corresponds to potential output or the level of real GDP where labour markets clear given normal frictions.
Components: Frictional unemployment (job search/mobility) and structural unemployment (skill/location mismatch) may persist; what disappears is cyclical unemployment caused by deficient demand.
Policy link: Demand management (fiscal/monetary policy) aims to close recessionary gaps and return the economy to full employment. Exceeding it can create inflationary pressure as actual output surpasses capacity.
Indicators: NAIRU/"natural rate" is often used to approximate full-employment unemployment.