Below Full Employment Equilibrium


DEFINITION of 'Below Full Employment Equilibrium'

A macroeconomic term used to describe a situation where an economy's short-run real gross domestic product (GDP) is currently lower than that same economy's long-run potential real GDP. Under this scenario, there is a recessionary gap between the two levels of GDP (measured by the difference between potential GDP and current GDP) that would have been produced had the economy been in long-run equilibrium.

BREAKING DOWN 'Below Full Employment Equilibrium'

When an economy is currently below its long-run real GDP level, there will be economic unemployment of resources, which will lead to an economic recession. The long-run real GDP level represents what an economy can produce had it been under full employment.

Full employment means the economy is utilizing all input resources (labor, capital, land, etc.) to its fullest potential. At full employment, there will still be natural unemployment in the labor market. This is unavoidable.

  1. Economy

    Economy is the large set of inter-related economic production ...
  2. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced ...
  3. Business Cycle

    The fluctuations in economic activity that an economy experiences ...
  4. Disguised Unemployment

    Unemployment that does not affect aggregate output. Disguised ...
  5. GDP Gap

    The forfeited output of a country's economy resulting from the ...
  6. Natural Unemployment

    The lowest rate of unemployment that an economy can sustain over ...
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