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Full employment and equilibrium level of national income
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Full Employment and Equilibrium Level of National Income
Introduction
Full employment and the equilibrium level of national income are pivotal concepts in macroeconomics, particularly within the framework of the circular flow of income. These concepts are integral to understanding how economies achieve stability and growth. For students of the AS & A Level Economics (9708), mastering these topics provides a foundation for analyzing economic policies and their impacts on national prosperity.
Key Concepts
Understanding Full Employment
Full employment refers to a situation in the economy where all available labor resources are being used efficiently. In other words, it signifies a condition where everyone willing and able to work at the prevailing wage rates has employment. It is essential to distinguish full employment from zero unemployment; full employment accommodates natural unemployment, including frictional and structural unemployment, which are inherent in any dynamic economy.
The Natural Rate of Unemployment
The natural rate of unemployment is the long-term rate of unemployment arising from all sources except fluctuations in aggregate demand. It comprises frictional unemployment, which occurs when individuals are temporarily between jobs or entering the workforce, and structural unemployment, which results from mismatches between workers’ skills and the demands of employers. Mathematically, it can be expressed as:
$$ u_n = u_f + u_s $$where $u_n$ is the natural rate of unemployment, $u_f$ is frictional unemployment, and $u_s$ is structural unemployment.
Equilibrium Level of National Income
The equilibrium level of national income is the income level at which aggregate demand (AD) equals aggregate supply (AS) in the economy. At this point, there are no unintended inventories, and the economy is operating at its potential output. The equilibrium can be graphically represented where the AD curve intersects the AS curve.
Mathematically, it can be shown using the Keynesian Cross model:
$$ Y = C + I + G + (X - M) $$where $Y$ is national income, $C$ is consumption, $I$ is investment, $G$ is government spending, $X$ is exports, and $M$ is imports.
The Circular Flow of Income
The circular flow of income is a model that depicts the movement of money between different sectors of the economy. It illustrates how households provide factors of production to firms, and in return, receive wages, rents, interest, and profits. These incomes are then used to purchase goods and services from firms, creating a continuous loop of economic activity.
Aggregate Demand and Aggregate Supply
Aggregate demand represents the total demand for goods and services in an economy at a given overall price level and in a given period. It is the sum of consumption, investment, government spending, and net exports:
$$ AD = C + I + G + (X - M) $$Aggregate supply, on the other hand, represents the total supply of goods and services that firms in an economy plan to sell during a specific time period. In the short run, the aggregate supply curve is upward sloping, indicating that higher price levels incentivize producers to increase output.
The Multiplier Effect
The multiplier effect describes how an initial change in autonomous spending leads to a larger change in national income. It is based on the idea that one person's spending becomes another person's income, creating a chain reaction of spending and income in the economy.
The formula for the multiplier ($k$) is:
$$ k = \frac{1}{1 - MPC} $$where $MPC$ is the marginal propensity to consume. A higher MPC leads to a larger multiplier effect, amplifying the impact of fiscal policies on national income.
Full Employment Equilibrium
Full employment equilibrium occurs when the equilibrium level of national income corresponds to the level of income where all resources, especially labor, are fully utilized. In this state, aggregate demand intersects aggregate supply at the point where the natural rate of unemployment prevails. This ensures that the economy is neither overheating nor underperforming.
Factors Affecting National Income at Full Employment
Several factors influence the equilibrium level of national income when the economy is at full employment:
- Government Policies: Fiscal and monetary policies can shift aggregate demand, affecting national income.
- Investment Levels: Changes in investment can influence economic growth and income levels.
- External Sector: Export and import levels impact the aggregate demand and, consequently, the national income.
- Technological Advancements: Improvements in technology can enhance productivity, leading to higher output and income.
Long-Run Aggregate Supply
In the long run, the aggregate supply curve is vertical, indicating that national income is determined by factors such as technology, capital, and labor, rather than the price level. At full employment, the long-run aggregate supply (LRAS) reflects the economy's capacity to produce goods and services sustainably.
Role of Savings and Investment
Savings and investment play crucial roles in determining national income. Savings provide the funds necessary for investment, which in turn generates income and employment. The relationship between savings and investment is fundamental to the equilibrium level of national income.
In equilibrium, savings ($S$) equal investment ($I$):
$$ S = I $$Fiscal Policy and National Income
Fiscal policy, involving government spending and taxation, is a primary tool for regulating national income. Expansionary fiscal policy, which increases government spending or decreases taxes, can boost aggregate demand and elevate national income. Conversely, contractionary fiscal policy can reduce aggregate demand and lower national income.
Monetary Policy and Its Impact
Monetary policy, managed by the central bank, influences national income through the control of money supply and interest rates. Lower interest rates encourage borrowing and investment, thereby increasing aggregate demand and national income. Higher interest rates have the opposite effect.
Consumption Function
The consumption function describes the relationship between disposable income and consumption expenditure. It is pivotal in understanding how changes in income levels influence aggregate demand.
$$ C = a + b(Y - T) $$where $C$ is consumption, $a$ is autonomous consumption, $b$ is the marginal propensity to consume, $Y$ is national income, and $T$ is taxes.
Equilibrium in the Goods Market
Equilibrium in the goods market occurs when aggregate demand equals aggregate supply. At this point, planned expenditure matches actual output, ensuring that there are no unplanned changes in inventories. This equilibrium determines the overall level of economic activity.
Role of Expectations
Expectations about the future state of the economy can significantly influence current economic decisions. If individuals expect higher future income, they may increase current consumption, thereby affecting aggregate demand and the equilibrium level of national income.
Income and Expenditure Approach
National income can be measured using the income approach or the expenditure approach. The income approach sums all incomes earned by factors of production, including wages, rents, interest, and profits. The expenditure approach, as previously discussed, sums consumption, investment, government spending, and net exports.
Leakages and Injections
In the circular flow of income, leakages are non-consumption uses of income, such as savings, taxes, and imports. Injections are additions to the economy from investments, government spending, and exports. For equilibrium, total leakages must equal total injections:
$$ S + T + M = I + G + X $$Aggregate Demand in Multiple Equilibriums
While typically there is a single equilibrium, multiple equilibria can exist under certain conditions, especially in economies with rigid price structures or significant external shocks. These can lead to situations where different levels of national income are stable under varying aggregate demand conditions.
Stabilization Policies
Governments employ stabilization policies to maintain national income at its equilibrium level around full employment. These include fiscal and monetary policies aimed at mitigating economic fluctuations and promoting steady growth.
Impact of External Shocks
External shocks, such as global financial crises or sudden changes in commodity prices, can disrupt the equilibrium level of national income by shifting aggregate demand or aggregate supply. Understanding these impacts is crucial for formulating effective economic policies.
Supply-Side Factors
Supply-side factors, including productivity, labor force growth, and technological advancements, influence the long-run aggregate supply and, consequently, the equilibrium level of national income. Enhancing these factors can lead to sustainable economic growth.
Advanced Concepts
Dynamic Equilibrium in National Income
Dynamic equilibrium refers to a state where the economy experiences constant changes, yet maintains a stable equilibrium level of national income over time. This concept accounts for the continuous adjustments in aggregate demand and supply due to factors like technological progress and demographic shifts.
The equation for dynamic equilibrium can be represented as:
$$ \frac{dY}{dt} = 0 $$indicating that the rate of change of national income over time is zero, maintaining equilibrium despite underlying dynamics.
Multiplier-Accelerator Model
The multiplier-accelerator model combines the concepts of the multiplier effect and the accelerator principle. It explains how changes in investment can lead to amplified variations in national income through their impact on aggregate demand and the subsequent response of businesses to changes in output.
The combined effect can be expressed as:
$$ \Delta Y = k \cdot \Delta I $$ $$ \Delta I = \alpha \cdot \Delta Y $$ $$ \Delta Y = \frac{k \cdot \alpha}{1 - k \cdot \alpha} \cdot \Delta I $$where $k$ is the multiplier and $\alpha$ is the accelerator coefficient. This model can lead to cyclical fluctuations in national income.
IS-LM Model Integration
The IS-LM model integrates the equilibrium in the goods market (IS curve) with the money market (LM curve) to determine the simultaneous equilibrium levels of national income and the interest rate. This model highlights the interplay between real economic activities and financial variables.
The IS curve represents the combinations of national income and interest rates where the goods market is in equilibrium:
$$ Y = C(Y - T) + I(r) + G $$The LM curve represents the combinations where the money market is in equilibrium:
$$ M/P = L(Y, r) $$The intersection of the IS and LM curves determines the equilibrium level of national income ($Y^*$) and the equilibrium interest rate ($r^*$).
Laffer Curve and Taxation
The Laffer Curve illustrates the relationship between tax rates and tax revenue. It posits that there is an optimal tax rate that maximizes revenue, beyond which higher tax rates may lead to a decrease in revenue due to reduced incentives for work and investment.
Mathematically, it can be expressed as:
$$ R = T \cdot B(T) $$where $R$ is tax revenue, $T$ is the tax rate, and $B(T)$ is the tax base as a function of the tax rate.
Okun’s Law
Okun’s Law describes the relationship between unemployment and national income. It indicates that for every 1% increase in the unemployment rate, a country's GDP will be roughly an additional 2% lower than its potential GDP.
The empirical relationship is often expressed as:
$$ \frac{\Delta Y}{Y} = k - c \cdot \Delta u $$where $k$ is the natural growth rate of GDP, $c$ is the coefficient relating unemployment change to GDP change, and $\Delta u$ is the change in unemployment rate.
Phillips Curve and Inflation-Unemployment Trade-off
The Phillips Curve illustrates an inverse relationship between the rate of inflation and the rate of unemployment. It suggests that lower unemployment in an economy tends to be associated with higher rates of inflation, and vice versa.
The short-run Phillips Curve can be represented as:
$$ \pi = \pi^e - \beta (u - u_n) $$where $\pi$ is inflation, $\pi^e$ is expected inflation, $\beta$ is a positive constant, $u$ is the unemployment rate, and $u_n$ is the natural rate of unemployment.
Aggregate Demand Shifts and National Income Dynamics
Shifts in aggregate demand can result from changes in any of its components: consumption, investment, government spending, or net exports. Understanding these shifts is crucial for predicting changes in the equilibrium level of national income.
For example, an increase in government spending ($G$) shifts the AD curve to the right, leading to a higher equilibrium national income:
$$ AD' = C + I + G' + (X - M) $$Stagflation and Economic Challenges
Stagflation is an economic condition characterized by stagnant growth, high unemployment, and high inflation simultaneously. This phenomenon poses significant challenges for policymakers, as traditional tools to combat inflation may exacerbate unemployment and vice versa.
The occurrence of stagflation can be represented by a leftward shift in the aggregate supply curve:
$$ AS' = AS - \Delta AS $$Role of Expectations in Equilibrium
Expectations about future economic conditions influence current economic behavior. Rational expectations theory suggests that individuals use all available information to forecast future events, thereby affecting consumption, investment, and overall aggregate demand.
Incorporating expectations into equilibrium analysis can be done through adaptive or rational expectations models, which adjust the aggregate demand and supply dynamics accordingly.
Supply-Side Policies and Long-Run Growth
Supply-side policies aim to increase the productive capacity of the economy by improving factors such as labor productivity, capital formation, and technological innovation. These policies shift the long-run aggregate supply (LRAS) curve to the right, leading to higher equilibrium national income without triggering inflation.
Examples include tax incentives for investment, deregulation, and investment in education and infrastructure.
Business Cycles and National Income Fluctuations
Business cycles refer to the periodic fluctuations in economic activity, including periods of expansion and contraction. These cycles affect the equilibrium level of national income, with recessions leading to lower income levels and booms pushing income above the equilibrium.
Understanding business cycles involves analyzing shifts in aggregate demand and supply, as well as external shocks that disrupt economic stability.
Globalization and Its Impact on National Income
Globalization increases the interconnectedness of economies through trade, investment, and technology transfer. It impacts the equilibrium level of national income by affecting export and import levels, investment flows, and competitive dynamics.
Enhanced globalization can lead to increased aggregate demand through higher exports, thereby raising national income. However, it can also introduce vulnerabilities to global economic fluctuations.
IS-LM-BP Model in Open Economies
The IS-LM-BP model extends the IS-LM framework to open economies by incorporating the balance of payments (BP). It analyzes the interaction between the goods market, money market, and external sector, determining equilibrium national income and interest rates under conditions of open trade and capital mobility.
The BP curve represents combinations of national income and interest rates where the balance of payments is in equilibrium:
$$ BP: NX(Y, Y^*) + (r - r^*) \cdot K = 0 $$where $NX$ is net exports, $r$ is the domestic interest rate, $r^*$ is the foreign interest rate, and $K$ is capital mobility.
Endogenous Growth Theory
Endogenous growth theory posits that economic growth is primarily determined by internal factors rather than external influences. It emphasizes the role of knowledge, human capital, and innovation in driving long-term increases in national income.
The model can be represented as:
$$ Y = A \cdot K^\alpha \cdot L^{1-\alpha} $$where $A$ represents technological innovation, $K$ is capital, and $L$ is labor.
Real Business Cycle Theory
Real Business Cycle (RBC) theory attributes economic fluctuations to real (i.e., non-monetary) shocks, such as changes in technology or supply-side factors. It argues that these shocks lead to variations in productivity, influencing national income and employment levels.
RBC models focus on the intertemporal optimization decisions of consumers and firms, highlighting how supply-side innovations drive cycles of expansion and contraction.
Fiscal Sustainability and National Income
Fiscal sustainability concerns the government's ability to maintain its current spending, tax, and other fiscal policies without leading to an unsustainable level of debt. Sustainable fiscal policies support stable national income levels without causing long-term economic distortions.
Indicators of fiscal sustainability include the debt-to-GDP ratio and the primary balance. Maintaining these indicators within manageable limits ensures that fiscal policies contribute positively to national income.
Behavioral Economics and Consumption Patterns
Behavioral economics examines how psychological factors influence economic decision-making, affecting consumption patterns and aggregate demand. Insights from behavioral economics can explain deviations from traditional consumption functions, impacting the equilibrium level of national income.
For instance, consumer confidence and perceived economic stability influence spending behavior, thereby affecting aggregate demand and national income.
Environmental Economics and Sustainable National Income
Environmental economics integrates ecological considerations into economic analysis, emphasizing sustainable practices that do not compromise future generations' well-being. Sustainable national income accounts for environmental constraints and resource depletion, ensuring long-term economic stability.
Policies promoting renewable energy, pollution control, and resource management contribute to sustainable national income by aligning economic activities with environmental sustainability.
Global Financial Integration and National Income Stability
Global financial integration involves the free movement of capital across borders, influencing national income through investment flows and financial market dynamics. While it can enhance economic growth by providing access to capital, it can also expose economies to global financial volatility, affecting national income stability.
Managing financial integration requires robust regulatory frameworks to mitigate risks and ensure that capital flows contribute positively to national income.
Human Capital and Human Development
Human capital, encompassing education, skills, and health, significantly impacts productivity and national income. Investments in human capital enhance the workforce's quality, leading to higher output and economic growth.
The relationship can be modeled as:
$$ Y = A \cdot K^\alpha \cdot (hL)^{1-\alpha} $$where $h$ represents the level of human capital.
Technological Innovation and Productivity Growth
Technological innovation drives productivity growth, enabling higher output with the same input levels. Innovations can shift the aggregate supply curve to the right, increasing the equilibrium level of national income without inducing inflation.
The impact of technological innovation is evident in the production function:
$$ Y = A \cdot K^\alpha \cdot L^{1-\alpha} $$where an increase in $A$ (technology) leads to higher $Y$ (output).
Capital Accumulation and Economic Growth
Capital accumulation, the process of increasing the capital stock through investment, is fundamental to economic growth. It enhances productive capacity, leading to higher national income and improved living standards.
The relationship can be expressed through the Solow Growth Model:
$$ Y = K^\alpha (AL)^{1-\alpha} $$where $A$ is technology and $L$ is labor.
Income Distribution and Its Effects on National Income
The distribution of income affects aggregate demand and economic stability. Unequal income distribution can lead to reduced consumption among lower-income groups, dampening aggregate demand and potentially lowering national income.
Policies aimed at more equitable income distribution can enhance social welfare and support higher national income by increasing overall consumption.
Exchange Rates and Their Impact on National Income
Exchange rates influence the competitiveness of a nation's exports and imports. A depreciation of the domestic currency makes exports cheaper and imports more expensive, potentially increasing aggregate demand and national income.
Conversely, appreciation can reduce export competitiveness, decrease net exports, and lower national income.
International Trade Agreements and Economic Integration
International trade agreements facilitate economic integration by reducing trade barriers and encouraging cooperation among nations. These agreements can enhance trade flows, investment, and economic growth, thereby influencing the equilibrium level of national income.
The effects of such agreements can be analyzed through their impact on net exports ($X - M$) and overall aggregate demand.
Demographic Changes and National Income
Demographic shifts, such as aging populations or changing labor force participation rates, affect the supply side of the economy. These changes influence productivity, savings rates, and investment, thereby impacting the equilibrium level of national income.
Policies addressing demographic challenges, like retirement funding and education, are crucial for maintaining stable national income levels.
Financial Markets and Capital Allocation
Efficient financial markets ensure optimal allocation of capital, facilitating investment in productive ventures. Proper capital allocation enhances economic growth and raises the equilibrium level of national income.
Issues such as market failures, information asymmetry, and regulatory inefficiencies can hinder capital allocation, adversely affecting national income.
Behavioral Finance and Investment Decisions
Behavioral finance explores how psychological factors influence investors' decisions, impacting capital markets and, consequently, national income. Investor sentiment and behavioral biases can lead to market inefficiencies, affecting investment levels and economic growth.
Understanding these behavioral aspects is essential for predicting and managing fluctuations in national income.
Public Goods and National Income
Public goods, characterized by non-excludability and non-rivalry, such as national defense and public infrastructure, are essential for economic stability and growth. Government provision of public goods supports the conditions necessary for achieving full employment and equilibrium national income.
The provision of public goods can influence aggregate demand through government spending ($G$) and enhance the productivity of the private sector.
Externalities and Market Efficiency
Externalities, both positive and negative, affect market efficiency and national income. Positive externalities, like education, can enhance productivity, while negative externalities, such as pollution, can reduce economic welfare.
Addressing externalities through policies like taxes or subsidies can improve market outcomes and support sustainable national income levels.
Investment in Research and Development
Investment in research and development (R&D) drives innovation and technological progress, fostering long-term economic growth. R&D investment enhances productivity, leading to higher national income and improved competitiveness.
The impact of R&D can be incorporated into growth models as an exogenous factor that increases the technology parameter ($A$), thereby boosting output:
$$ Y = A \cdot K^\alpha \cdot L^{1-\alpha} $$Entrepreneurship and Economic Dynamism
Entrepreneurship fosters economic dynamism by introducing new products, services, and processes, driving innovation and competition. Entrepreneurs play a critical role in expanding markets, increasing productivity, and contributing to national income growth.
Supportive policies for entrepreneurship, such as access to finance and reducing regulatory burdens, can enhance economic vitality and elevate national income levels.
Human Rights and Economic Performance
Respect for human rights and the rule of law creates a stable and predictable environment for economic activities. Protection of property rights and enforcement of contracts encourage investment, entrepreneurship, and efficient resource allocation, thereby boosting national income.
Conversely, violations of human rights can lead to economic inefficiencies, reduced investor confidence, and lower national income.
Technological Disruptions and Labor Markets
Technological disruptions, such as automation and artificial intelligence, transform labor markets by altering the demand for specific skills. While these advancements can increase productivity and national income, they may also lead to structural unemployment and require re-skilling of the workforce.
Policies addressing these disruptions, like education and training programs, are essential for maintaining full employment and supporting national income.
Resource Allocation and Economic Efficiency
Efficient resource allocation ensures that resources are used where they are most productive, maximizing national income and economic welfare. Market mechanisms, when functioning correctly, facilitate optimal allocation through price signals and competition.
Policy interventions may be necessary to correct market failures and enhance resource allocation efficiency.
Global Value Chains and National Income
Global value chains (GVCs) involve the international fragmentation of production processes, where different stages of production are located across various countries. Participation in GVCs can enhance national income by increasing export opportunities and integrating economies into global markets.
However, reliance on GVCs also exposes economies to external shocks and requires effective coordination and policy support to maximize benefits.
Technology Transfer and Economic Development
Technology transfer involves the dissemination of technology from developed to developing economies, fostering economic development and increasing national income. It enhances productivity, supports industrialization, and promotes innovation within recipient countries.
Facilitating technology transfer through international cooperation and investment is crucial for economic advancement and achieving equilibrium income levels.
Income Elasticity of Demand and National Income
Income elasticity of demand measures how the quantity demanded of a good responds to changes in national income. It influences aggregate demand patterns and, consequently, the equilibrium level of national income.
Goods with high income elasticity are more sensitive to changes in income, significantly affecting consumption patterns and aggregate demand.
Behavioral Insights in Fiscal Policy
Incorporating behavioral insights into fiscal policy design can enhance policy effectiveness. Understanding how individuals perceive and respond to fiscal measures can lead to more targeted and efficient policies that better influence aggregate demand and national income.
For example, providing incentives for saving or investing can align fiscal policies with desired economic outcomes.
Role of Institutions in Economic Stability
Strong institutions, including legal systems, regulatory bodies, and governance structures, provide the framework for economic stability and growth. They ensure property rights, enforce contracts, and maintain market order, facilitating efficient economic activities and supporting national income.
Institutional quality is a determinant of investor confidence, innovation, and resource allocation efficiency, all of which contribute to the equilibrium level of national income.
Digital Economy and National Income
The digital economy encompasses economic activities facilitated by digital technologies, such as e-commerce, digital finance, and online services. It contributes to national income by creating new markets, enhancing productivity, and enabling innovative business models.
Policies promoting digital infrastructure and digital literacy are essential for maximizing the benefits of the digital economy and supporting equilibrium national income.
Gender Equality and Economic Performance
Gender equality in the workforce enhances economic performance by maximizing the utilization of human resources. It leads to increased productivity, higher national income, and improved social welfare.
Policies promoting equal opportunities, reducing discrimination, and supporting work-life balance contribute to economic growth and equilibrium income levels.
Comparison Table
| Aspect | Full Employment | Equilibrium Level of National Income |
| Definition | All available labor resources are being used efficiently with natural unemployment. | The income level where aggregate demand equals aggregate supply. |
| Focus | Labor market and utilization of human resources. | Overall economic output and demand-supply balance. |
| Measurement | Natural rate of unemployment including frictional and structural unemployment. | Intersection point of AD and AS curves determining GDP. |
| Implications | Indicators of labor market health and economic stability. | Indicators of economic performance and policy effectiveness. |
| Policy Tools | Labor market policies, education, and training. | Fiscal and monetary policies to manage aggregate demand. |
| Relationship | Represents optimal employment conditions in the economy. | Represents the overall balance of the economy's output and demand. |
Summary and Key Takeaways
- Full employment ensures efficient use of labor resources, integrating natural unemployment.
- The equilibrium level of national income is achieved when aggregate demand equals aggregate supply.
- Fiscal and monetary policies are critical in maintaining economic stability and growth.
- Advanced concepts like the IS-LM model and endogenous growth theory deepen the understanding of economic dynamics.
- Interconnected factors such as globalization, technological innovation, and human capital significantly influence national income.
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Examiner Tip
Tips
To excel in exams, remember the acronym AD-AS for Aggregate Demand and Aggregate Supply. Use mnemonics like FISCAL for factors affecting full employment: Fiscal policies, Investment levels, Savings, Consumption, Aggregate demand, and Labor. Practice drawing and interpreting AD-AS diagrams to visualize equilibrium changes effectively.
Did You Know
Did You Know
Did you know that during the Great Depression, the United States experienced a significant drop in national income, which was countered by implementing Keynesian economic policies to restore full employment? Additionally, modern economies rarely achieve absolute full employment due to persistent frictional and structural unemployment, highlighting the dynamic nature of labor markets.
Common Mistakes
Common Mistakes
Students often confuse the natural rate of unemployment with zero unemployment. Incorrect: Believing full employment means no unemployment. Correct: Understanding that full employment includes natural unemployment like frictional and structural. Another common mistake is misapplying the multiplier effect by forgetting to account for taxes and imports, which can dilute the overall impact on national income.
FAQ
What is the difference between full employment and zero unemployment?
Full employment includes natural unemployment such as frictional and structural unemployment, while zero unemployment implies no one is unemployed, which is unrealistic in dynamic economies.
How does the multiplier effect influence national income?
The multiplier effect magnifies the impact of an initial increase in autonomous spending on national income, leading to a larger overall increase in GDP.
What role do fiscal policies play in achieving full employment?
Fiscal policies, such as government spending and taxation, can shift aggregate demand to help achieve full employment by influencing overall economic activity.
Why is the long-run aggregate supply curve vertical?
In the long run, aggregate supply is vertical because national income is determined by factors like technology, capital, and labor, not by the price level.
Can multiple equilibria exist in an economy?
Yes, under certain conditions such as rigid price structures or significant external shocks, an economy can have multiple stable equilibrium levels of national income.
1.
The price system and the microeconomy
2.
The Macroeconomy
3.
International economic issues
4.
The macroeconomy
5.
The price system and the microeconomy
6.
Government macroeconomic intervention
7.
Basic economic ideas and resource allocation
8.
Government microeconomy intervention
9.
International economic issues
10.
Government microeconomic intervention
11.
Government macroeconomic intervention
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