Full Employment

Question 1

What is the definition of Full Employment?

Answer 1

Full employment is the level of employment at which all available labor resources are being utilized efficiently.

It does not mean zero unemployment but rather the lowest sustainable level of unemployment.

Question 2

What type of unemployment is absent at Full Employment?

Answer 2

Cyclical Unemployment

The economy operates at full capacity, with no demand-deficient unemployment caused by recessions.

Question 3

What is the Natural Rate of Unemployment (NRU)?

Answer 3

The lowest sustainable level of unemployment where only frictional and structural unemployment exist.

Some level of unemployment remains due to job transitions and skill mismatches.

Question 4

What are the two main types of unemployment that exist at the NRU?

Answer 4

• Frictional Unemployment
• Structural Unemployment

Frictional unemployment is short-term due to job transitions, while structural unemployment is due to a mismatch between skills and available jobs.

Question 5

What does Labor Market Equilibrium signify?

Answer 5

The number of job seekers matches the number of available jobs at prevailing wage rates.

Question 6

What is Potential Output (Y*) in the context of Full Employment?

Answer 6

The economy’s maximum productive potential without causing excessive inflation.

Question 7

What happens if employment exceeds the full employment level?

Answer 7

Labor shortages increase wages, leading firms to raise prices, causing demand-pull inflation.

Question 8

What does NAIRU stand for?

Answer 8

Non-Accelerating Inflation Rate of Unemployment.

Question 9

What is the significance of NAIRU in economic policy?

Answer 9

Policymakers use monetary policy to maintain unemployment close to NAIRU.

Question 10

What is the graphical representation of Full Employment in the Classical Model?

Answer 10

LRAS (Long-Run Aggregate Supply) is vertical at full employment.

Question 11

What occurs if Aggregate Demand (AD) increases beyond the full employment point in the Classical Model?

Answer 11

It leads to inflation, not real GDP growth.

Question 12

Describe the AS curve in the Keynesian Model at Full Employment.

Answer 12

The AS curve is upward sloping, with a steep section at full employment.

Question 13

What happens to GDP before reaching Full Employment in the Keynesian Model?

Answer 13

Increases in AD raise GDP significantly.

Question 14

What is the outcome of further AD growth at Full Employment in the Keynesian Model?

Answer 14

It mainly causes inflation.

Question 15

In the Aggregate Labour Market graph, what do the X and Y axes represent?

Answer 15

X axis is Employment and Y axis is Real Wage rate.

Question 16

What does the intersection of ALS and ALD represent?

Answer 16

The point of full employment.

Question 17

What is the free-market definition of full employment?

Answer 17

Full employment occurs where the labor market clears – all workers willing to work at market wages are employed

Remaining unemployment is voluntary.

Question 18

According to Beveridge’s definition, what characterizes full employment?

Answer 18

A situation where job vacancies exceed unemployed workers, with frictional unemployment being short-term and minimal

Government must actively stimulate demand to maintain full employment.

Question 19

What is the maximum unemployment percentage suggested by Beveridge for full employment?

Answer 19

No more than 3% unemployment

This comprises 1% frictional, 1% structural, and 1% seasonal unemployment.

Question 20

What are the types of unemployment included in Beveridge’s definition of full employment?

Answer 20

• 1% Frictional
• 1% Structural
• 1% Seasonal

These categories should not exceed a total of 3% for full employment.

Question 21

What does the Phillips Curve illustrate in the short run?

Answer 21

An inverse relationship between inflation and unemployment

This suggests that lower unemployment can lead to higher inflation.

Question 22

What is the Long-Run Phillips Curve’s relationship with NAIRU?

Answer 22

It is vertical at NAIRU

Attempts to push unemployment below NAIRU cause accelerating inflation.

Question 23

True or False: Beveridge advocated for government intervention to sustain full employment.

Answer 23

True

Government action is necessary to maintain demand in the labor market.

Question 24

What is the aim of Demand-Side Policies in the Keynesian Approach?

Answer 24

Stimulate AD to reduce unemployment.

AD stands for Aggregate Demand.

Question 25

What fiscal policy measures are used to boost demand?

Answer 25

Higher government spending and tax cuts. ## Footnote These measures aim to increase consumer and business spending.

Question 26

How does monetary policy aim to reduce unemployment?

Answer 26

By lowering interest rates to encourage investment and hiring. ## Footnote Lower interest rates make borrowing cheaper, which can stimulate economic activity.

Question 27

What are the risks associated with Demand-Side Policies?

Answer 27

Overheating the economy can lead to inflation. ## Footnote Inflation can erode purchasing power and destabilize the economy.

Question 28

What is the aim of Supply-Side Policies in the Classical Approach?

Answer 28

Improve labor market efficiency. ## Footnote Efficiency in the labor market can lead to better job matches and higher employment.

Question 29

What role does education and training play in Supply-Side Policies?

Answer 29

Reducing skill mismatches. ## Footnote Skill mismatches occur when workers do not have the skills needed for available jobs.

Question 30

What are labor mobility incentives in the context of Supply-Side Policies?

Answer 30

Addressing regional unemployment. ## Footnote These incentives encourage workers to move to areas with more job opportunities.

Question 31

How do Supply-Side Policies aim to reduce market rigidities?

Answer 31

By reforming minimum wage laws and employment regulations. ## Footnote Reducing rigidities can make it easier for businesses to hire and adjust to market conditions.

Question 32

What is a potential risk of Supply-Side Policies?

Answer 32

Policies may take time to impact employment. ## Footnote Changes in education and regulation may not yield immediate results.

Question 33

What was the aim of the UK post-WWII economy?

Answer 33

Full employment through intervention and collective bargaining ## Footnote This aimed to stabilize the economy following the war.

Question 34

Why was wage control important in the UK post-WWII economy?

Answer 34

To prevent inflation, as wages form the largest share of both costs and income ## Footnote Wage control was essential to maintain economic stability.

Question 35

What role did trade unions play in the context of full employment in the UK?

Answer 35

Full employment gave unions greater bargaining power, risking economic stability ## Footnote Unions could push wages up too much, leading to cost-push inflation.

Question 36

What was the policy dilemma regarding wage negotiations in the UK post-WWII?

Answer 36

Whether governments should intervene in wage negotiations or let market forces dictate wages ## Footnote This dilemma reflects the tension between government control and free market principles.

Question 37

What was a key success of the UK post-WWII employment policy?

Answer 37

Maintained lower unemployment rates than other Western economies ## Footnote This suggests effective management of the post-war economy.

Question 38

What is a key implication of the full employment policy?

Answer 38

Full employment does not guarantee price stability; wage and productivity policies are crucial ## Footnote This highlights the complexity of economic management.

Question 39

What might be necessary to prevent inflationary pressures during full employment?

Answer 39

Government intervention in collective bargaining ## Footnote This indicates a proactive approach to economic policy.

Question 40

What was the unexpected employment rate in the UK by 2015?

Answer 40

Surpassed 74%, exceeding expectations ## Footnote This was notable considering the aftermath of the financial crisis.

Question 41

How did rising employment impact living standards in the UK post-2015?

Answer 41

Offset weak wage growth and reductions in working-age state support ## Footnote This was crucial for maintaining household living standards.

Question 42

What was the impact of employment growth on inequality in the UK during the 2010s?

Answer 42

Strongest among lower-income households, reducing post-crisis inequality ## Footnote This indicates a positive trend towards economic equality.

Question 43

What was the result for lower-income households during and after the crisis?

Answer 43

Incomes fell less during the crisis and recovered faster afterward ## Footnote This showcases resilience among lower-income groups.

Question 44

What are two major factors changing job structures and challenging full employment?

Answer 44

Globalisation and Automation ## Footnote The rise of automation and global competition are altering the nature of jobs available.

Question 45

What policy innovations may be necessary to ensure full employment in the future?

Answer 45

Universal Basic Income (UBI), job guarantees, retraining programs ## Footnote These policies aim to address the evolving labor market conditions.

Question 46

True or False: Automation is a factor that could potentially hinder full employment.

Answer 46

True ## Footnote Automation may reduce the number of available jobs in certain sectors.

Question 47

Fill in the blank: Policies such as _______ may be necessary to address changing labor market conditions.

Answer 47

Universal Basic Income (UBI) ## Footnote UBI is one of the proposed solutions to support individuals in a changing job market.

Question 48

What challenges does global competition pose for full employment?

Answer 48

Changing job structures ## Footnote Global competition can lead to job displacement and require workforce adaptation.