The potential level of output is the amount of output that the economy should produce when all expected resources of the economy are employed. It is achieved when the economy is fully employed. It is also called a full employment level. The natural rate of unemployment is the total number of frictional and structural unemployed in the economy. When the unemployment level is up to the natural rate of unemployment then the output generated at that level is called full employment level. If the unemployment level is greater than the natural rate of unemployment then the potential output is lower and vice-versa. Yes, every resource is used to produce the potential level of output.
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