Question

Does ‘equilibrium beyond full employment’ imply a higher level of output compared to ‘full employment equilibrium’? Why?

Answer 1

No, reaching a new equilibrium after full employment doesn’t mean the economy is producing more. Once full employment is reached, output can’t increase any further because all resources are already in use, and technology is assumed to stay the same.

So, if demand (AD) keeps rising after this point, it doesn’t lead to more output. It only means that demand and supply are balanced at a higher price level. In simple terms, prices go up, but the amount of goods produced stays the same.