Posted by Anjali Kaur on Oct 05, 2020
Types of employment equilibrium

Types of Employment Equilibrium

Under macroeconomics, there are 3 types of employment equilibrium:

  1. Full Employment Equilibrium
  2. Under Employment Equilibrium
  3. Over Employment Equilibrium

 Let’s learn more about it.

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1. Full Employment Equilibrium

It refers to the situation where Aggregate Demand = Aggregate Supply.

The full employment level of equilibrium is determined by every economy on the basis of full use of resources and estimating that all those who are willing to work at the prevailing wage rate are able to get the employment and nobody is unemployed. As shown below:

2. Under Employment Equilibrium

When Aggregate demand becomes equal to Aggregate supply before the full employment level and resources are not fully utilized, this is called under employment equilibrium.

As shown below, AD = AS at point U. It is lower than full employment level of equilibrium.

Hence, U shows underemployment in the economy that is, when Actual AD < Planned AD.

3. Over Employment Equilibrium

It refers to a situation when Aggregate Demand is equal to the Aggregate Supply, after the full employment level of equilibrium is reached.

As shown below, in this diagram O indicates over employment when Actual AD > planned AD after the full employment level of equilibrium.

Thank You for reading.

You can read the related post on macroeconomics:

Concept of Short-Term Equilibrium

Aggregate Supply

Aggregate Demand

Introduction To Money

Central bank and its function

Process of credit creation

Precautions while calculating the national income

Real and nominal GDP

National income

National income formula list

Value-added method

Income method

Expenditure method

GDP and welfare

Domestic territory and national residents

Circular flow of income

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