Macroeconomics

Table of Contents

1. Topic pack - Macroeconomics - introduction
2. 2.1 The level of overall economic activity (notes)
3. 2.1 The level of overall economic activity (questions)
4. Section 2.2 Aggregate demand and supply (notes)
   1. Aggregate demand and supply - introduction
   2. The AD/AS model
   3. Aggregate demand curve
   4. Changes in aggregate demand
   5. Short-run aggregate supply (SRAS)
   6. Changes in SRAS
   7. Long run aggregate supply (LRAS) - classical
   8. Changes in LRAS - classical
   9. Long run aggregate supply (LRAS) - Keynesian
   10. Aggregate supply changes
   11. Full employment level of national income
   12. Equilibrium national income
   13. The essentials of AD and AS
   14. Changes in short-run equilibrium - summary
   15. Equilibrium in the long run?
   16. Equilibrium in the Keynesian model
   17. Inflationary and deflationary gaps
   18. Keynes vs. Hayek (video)
   19. The Keynesian multiplier
5. Section 2.2 Aggregate demand and supply (simulations and activities)
6. 2.2 Aggregate Demand and Aggregate Supply (questions)
7. 2.3 Macroeconomic objectives (notes)
8. Low Unemployment
9. 2.3 Macroeconomic objectives (questions)
10. 2.4 Fiscal policy (notes)
11. 2.4 Fiscal policy (questions)
12. 2.5 Monetary policy (notes)
13. 2.5 Monetary Policy (questions)
14. Section 2.6 Supply-side policies (notes)
15. 2.6 Supply-side policies (questions)
16. Print View

Full employment level of national income

This is a really important concept

National Income (Y) can be calculated by measuring the total level of output of the economy (GDP etc).

Generally speaking, the more the economy produces, the more people (Labour) will be needed to produce extra goods and services. However, there will be a maximum level of output where everyone (and land and capital) available is employed and no more output can be produced. You can think of this as the economy being at its full capacity - all factors of production being used efficiently.

This level of output is called the full employment level of national income. At this level of income, there is no shortage of demand in the economy and therefore there is no Cyclical Unemployment - but there may still be Structural and Frictional Unemployment.

NB This level of GDP is also referred to as - the Natural Rate of Unemployment by neoclassicists and Non Accelerating Inflation, Rate of Unemployment (NAIRU) by Keynesians.

You can see the level of full employment income in Figure 1 below - Yfe. It is the reason why the Keynesian LRAS has a vertical section and is the level opf GDP that positions the neoclassical LRAS.

Figure 1 Full employment national income (Yfe) - Keynesian and Neo-classical