Question

At the equilibrium level of income, which of the following statements is correct regarding employment?

Options

• Employment is independent of the equilibrium level of output

• Full employment is automatically restored whenever \[Y = AD\]

• Equilibrium output always guarantees that all factors are fully used

• Equilibrium output decides employment, given other factors, but \[Y = AD\] does not guarantee full employment

Answer 1

Equilibrium output decides employment, given other factors of production. However, the equality \[Y = AD\] does not guarantee full employment — full employment income means all factors are fully used, and equilibrium income can exist even with unemployment.