Question

explain with the help of diagrams that the equilibrium level of income and employment is not necessarily a full employment level​

Answer 1

According to the classical economists, equilibrium level of income is attained always at full employment level, i.e. there is absence of involuntary unemployment. However, as per the Keynesian theory, equilibrium level can be achieved at:

(i) Full employment level; or

(ii) Underemployment level, i.e. less than full employment level; or

(ii) Over full employment level, i.e. more than full employment level.