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Full employment doesn't mean that there is zero unemployment. Full employment only means that the economy is operating at full employment because there is only structural unemployment, frictional unemployment, and seasonal unemployment. Remaining unemployment is cyclical.
Even when an economy is working properly, it will experience frictional, seasonal, and structural unemployment. (gp)
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Potential GDP is the same as real GDP when?
the economy is operating at full employment. Note: full employment is not the same as zero unemployment.
Why isn't full employment the same as zero unemployment?
Full employment and zero unemployment are not the same because full employment refers to a situation where all individuals who are willing and able to work are employed, while zero unemployment would mean that there are absolutely no individuals without a job. In reality, there may always be some level of unemployment due to factors such as frictional unemployment (people transitioning between jobs) or structural unemployment (mismatch between skills and available jobs).
If the price level rises and the money wage rate rises by the same percentage what happens to the quantity of real GDP supplied?
When the price level and the money wage rate change by the same percentage, the real wage rate remains constant at its full employment equilibrium level so employment remains constant and real GDP remains constant at "potential GDP" which is the quantity of real GDP at full employment.
What happens when supply increases?
when the supply of a commodity increases but demand remains constant then price of the commodity falls which is called deflation with the result unemployment rises.on the other hand if supply rises and if demand also rises with same rate then this would have positive effect on the economy as the employment rises with out inflation.
How are monetary and fiscal policy similar?
Both monetary and fiscal policy may be used to influence the performance of the economy in the short run. They share many of the same goals which are to: keep inflation low, maintain positive economic growth, and aim for full employment.
