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. Gross Domestic Product - GDP

    GDP is the monetary value of all the finished goods and services ...
  2. Inflationary Gap

    An inflationary gap is a macroeconomic condition describing the ...
  3. GDP Price Deflator

    An economic metric that accounts for inflation by converting ...
  4. Induced Taxes

    Within the context of macroeconomics and fiscal policy, a type ...
  5. Nominal GDP

    A gross domestic product (GDP) figure that has not been adjusted ...
  6. Stock Market Capitalization To ...

    The stock market capitalization to GDP ratio is a ratio used ...
Related Articles
  1. Insights

    The GDP and its Importance

    GDP is an accurate indication of an economy's size. Few data points can match the GDP and its growth rate's conciseness.
  2. Insights

    How to Calculate the GDP of a Country

    The GDP of a country can be calculated using two different approaches.
  3. Insights

    Why GDP Is Not an Accurate Measure of the Economy

    Is gross domestic product (GDP) an accurate measure of the strength or weakness of the U.S. economy?
  4. Insights

    Nominal vs. Real GDP

    GDP stands for gross domestic product and is the measure of the total economic output of the goods and services of a country.
  5. Insights

    Healthiest And Safest European Economies

    Economic indicators are to economists what symptoms are to doctors: signs of the relative well-being of the patient.
  6. Insights

    One Reason Jobs Shrink: Superstar Companies

    Are superstar companies that dominate their industries but employ relatively few workers to blame for labor’s falling share of GDP?
  7. Investing

    Can Global Investors Profit From GDP Watching?

    GDP growth is not necessarily a solid indicator of stock market returns in emerging markets. Find out what to watch instead.
  8. Insights

    Does High GDP Mean Economic Prosperity?

    GDP is the typical indicator used to measure a country's economic health. Find out what it fails to reveal and how GPI can help.
  1. What is GDP and Why Is It So Important To Investors?

    The gross domestic product (GDP) is one the primary indicators used to gauge the health of a country's economy. What does ... Read Answer >>
  2. How much of an economy's performance is captured by real GPD?

    Learn about the economic information captured by real GDP. Find out how real and nominal GDP are constructed and the purposes ... Read Answer >>
  3. How does the stock market affect gross domestic product (GDP)?

    Find out how the stock market affects gross domestic product (GDP) through two different channels: financial conditions and ... Read Answer >>
  4. How are aggregate demand and GDP related?

    See why aggregate demand and gross domestic product (GDP) are necessarily the same thing according to Keynesian macroeconomic ... Read Answer >>
  5. Which developed country has the most debt?

    Discover the nations that have the largest net government debt, viewed in terms of absolute dollar amount or as a percentage ... Read Answer >>
Hot Definitions
  1. Entrepreneur

    An Entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture. ...
  2. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  3. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  4. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  5. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
  6. Leverage Ratio

    A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt, or ...
Trading Center