Final answer:
A lack of full employment negatively impacts the economy by reducing consumer spending, causing financial instabilities due to loan defaults, forcing individuals to alter their financial goals, and increasing government spending on benefits. It also represents a significant opportunity cost as it leaves valuable human capital unused.
Step-by-step explanation:
A lack of full employment has multiple harmful effects on the economy. Some of the issues include:
- Unemployed people usually buy fewer things, contributing to reduced demand for goods and services which can lead to slower economic growth.
- Unemployed individuals may not be able to repay their loans, affecting the financial health of lending institutions and potentially leading to broader financial crises.
- Unemployed people may have to change their financial goals, including downsizing their living arrangements or depleting savings, which can have long-term effects on financial stability and personal wealth.
- Lastly, unemployed people drawing unemployment benefits increase government spending. This can be a strain on government budgets and may result in increased taxes or reduced spending in other areas.
Contrary to one of the options, unemployed people are typically actively looking for jobs, and they generally do not have increased buying power. A high unemployment rate means valuable human capital is left untapped, similar to an idle factory, representing a significant opportunity cost to the economy.