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When the economy is at its full employment level, is the unemployment rate zero? Justify your...

When the economy is at its full employment level, is the unemployment rate zero? Justify your answer.

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Answer #1
  • No, when the economy is operating at its full employment, the unemployment rate is not zero.
  • Full employment refers to the condition in which all the people who wish and have the ability to work are employed.
  • When the economy is at a full employment level, the economic output is at a very high potential level.
  • But it does not completely mean that there is no unemployment rate as we know that full employment level equals the natural unemployment rate.
  • Therefore some level of structural and frictional unemployment still exists when there is full employment within an economy.
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