Question

What is Full Employment?

Hint:

Keynes defined full employment as the absence of involuntary unemployment.
In modern economics, this level is often called the Natural Rate of Unemployment.

Answer 1

Step 1: Understanding the Concept:
In a practical sense, full employment does not mean 0% unemployment.
It refers to a state where there is no "involuntary unemployment".
Step 2: Detailed Explanation:
- Involuntary Unemployment: When people are willing and able to work at the existing wage rate but cannot find work.
- Voluntary Unemployment: When people choose not to work at the prevailing wage rate. This still exists at full employment.
- Even at full employment, there may be "frictional" or "structural" unemployment due to job transitions or changes in technology.
Step 3: Final Answer:
Full employment is a state where everyone who is willing and able to work at the prevailing wage rate gets employment.