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.
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1. Full Employment Equilibrium
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.
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You can read the related post on macroeconomics:
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