An economy may operate at a level below full employment due to a deficiency in Aggregate Demand (AD) leading to a/an __________ employment equilibrium.
(i) Full
(ii) Over
(iii) Under
(Choose the correct option to fill in the blank)
An economy may operate at a level below full employment due to a deficiency in Aggregate Demand (AD) leading to a/an __________ employment equilibrium.
(i) Full
(ii) Over
(iii) Under
(Choose the correct option to fill in the blank)
Show Hint
- Only (i)
- Only (ii)
- Only (iii)
- (ii) and (iii)
The Correct Option is C
Solution and Explanation
Full employment equilibrium: AD equals AS at the full employment output.
Under employment equilibrium: AD is less than needed, so output is below the full employment level.
Over employment equilibrium: AD is more than the full employment output can meet, which causes inflation.
Step 2: Apply to the question:
The question says that the economy is below full employment due to deficient AD.
That is an under employment equilibrium, which is statement (iii).
Step 3: Why the other options are wrong:
(A) Only (i): full employment is not below the full employment level, so it is wrong.
(B) Only (ii): over employment arises from excess demand, not a deficiency, so it is wrong.
(D) (ii) and (iii): (ii) does not fit, so the pair is wrong.
Final Answer:
Under employment equilibrium, option (C).
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