Types of Employment Equilibrium
Under macroeconomics, there are 3 types of employment equilibrium:
- Full Employment Equilibrium
- Under Employment Equilibrium
- Over Employment Equilibrium
Let’s learn more about it.
A quick note: Subscribe to our website to get answers to your curriculum questions.
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
Precautions while calculating the national income
Domestic territory and national residents
Feel free to join our Facebook group and subscribe to this website to get daily educational content in your mailbox.
Disclosure: Some of the links on the website are adds, meaning at no additional cost to you, I will earn a commission if you click through or make a purchase. Please support so that I can continue writing great content for you.
Photo by Nathan Dumlao on Unsplash