Full-employment equilibrium occurs when
A)aggregate demand equals short-run aggregate supply.
B)all who are willing and able to work, are working.
C)real GDP equals potential GDP.
D)real GDP equals potential GDP and the wage level is set so that the GDP deflator equals 100.
E)all who are willing and able to work are working, and the wage level is set so that the GDP deflator equals 100.

Question

Quizplus · Accepted Answer

Full-employment equilibrium occurs when real GDP equals potential GDP, meaning the economy is producing at its maximum possible level of output given its resources and technology. While full employment is a desirable outcome, it is not necessary for full-employment equilibrium to occur. Therefore, choices B and E are incorrect. Choice D is partially correct but not complete, as it only addresses the GDP deflator rather than the entire macroeconomy. Choice A is incorrect because aggregate demand can equal short-run aggregate supply at any level of output, not just at full-employment equilibrium.

Full-Employment Equilibrium Occurs When