Equilibrium Output, Multiplier and Problems of Demand — Part 2: Full Employment and Problems of Demand: visual lesson, ISC Class 12 Economics

Lesson

Full Employment and Problems of Demand

Part 2 — full employment, why equilibrium can fall short of it, excess and deficient demand, and the measures that correct them.

In this lesson you will

Explain full employment and involuntary unemployment
Show inflationary and deflationary gaps on a diagram and calculate them
Explain the causes and effects of excess and deficient demand, and suggest fiscal and monetary measures

Part 2 at a glance

Concept

Full employment

Full employment: all who are able and willing to work at the prevailing wage have work. It allows some frictional and voluntary idleness.

Table of employment terms: full employment, where all who are able and willing to work at the going wage have jobs; involuntary unemployment, where people willing to work at the going wage cannot find work; frictional unemployment between jobs; and voluntary unemployment of those unwilling to work at the going wage
Term	Meaning	Example (imagined)
Full employment	All able and willing to work at the going wage have jobs	A town where any willing worker finds work at the going wage
Involuntary unemployment	Willing to work at the going wage but cannot find work	A trained welder who would accept the going wage, with no openings
Frictional unemployment	Short spells between jobs	A nurse moving to a new hospital next month
Voluntary unemployment	Not willing to work at the going wage	Someone who chooses to wait for a far higher wage

Concept

Equilibrium below full employment

Keynes: equilibrium is fixed by AD. If planned spending is low, AD = AS below full-employment output: an underemployment equilibrium.

Keynes: equilibrium need not be at full employment

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