Above Full Employment Equilibrium - Definition
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Back to: ECONOMIC ANALYSIS & MONETARY POLICY
Above Full-Employment Equilibrium Definition
When an economy manufactures goods or products at higher economic rates than normal, it is regarded as above full-employment equilibrium. The gross domestic product (GDP) of an economy often reflects the normal rate at which goods or commodities are expected to be produced in an economy. When the rates of production however shoots higher than the appropriate rate measured by the GDP, there is an above full-employment equilibrium. Above full-employment equilibrium is also an indication that the real GDP of an economy is more than what have been recorded in previous years. When the real GDP is more than long-term potential, it might be as a result of inflation experienced in the economy.
A Little More on What is Above Full-Employment Equilibrium
Usually, if an economy or market is in equilibrium, excess short-term supply will not occur, but an above full-employment equilibrium is one that witnesses the production of goods or commodities at higher levels. When a market or an economy is overly vulnerable, higher prices, higher wages and increased production will occur. This will however trigger inflationary pressures. The definition of above full-employment takes the GDP of a nation into consideration. This term refers to a situation in which products and services are produced at higher rate (more than the long-term average). The difference between the current real GDP and the long-term historical average can be as a result of inflation pressures and differences. However, when the rise in prices restores demand to its normal rate, equilibrium will occur. An economy can recover from a state of above full-employment equilibrium given certain factors and measures. The policy of fiscal expansion is one of the significant ways the government can overcome the cause of above full-employment equilibrium. Where there is a notable change in demand such as increase in public spending, increase in military spending, tax cuts, government incentives, among others can help an economy overcome the state of above full-employment equilibrium. These measures would help stimulate demand in an economy.
References for Above Full-Employment Equilibrium
Academic Research on Above Full Employment Equilibrium
Equilibrium unemployment as a worker discipline device, Shapiro, C., & Stiglitz, J. E. (1984). The American Economic Review, 74(3), 433-444.Capital expansion, rate of growth, and employment, Domar, E. D. (1946). Econometrica, Journal of the Econometric Society, 137-147.The economic implications of learning by doing, Arrow, K. J. (1962). The review of economic studies, 29(3), 155-173.A model of imperfect competition with Keynesian features, Hart, O. (1982). The Quarterly Journal of Economics, 97(1), 109-138.Growth cycles and inflation in a model of the class struggle, Desai, M. (1973). Journal of Economic Theory, 6(6), 527-545.Marginal productivity and the macro-economic theories of distribution: comment on Samuelson and Modigliani, Kaldor, N. (1966). The Review of Economic Studies, 33(4), 309-319.The classical stationary state, Pigou, A. C. (1943). The Economic Journal, 53(212), 343-351.Money-wage dynamics and labor-market equilibrium, Phelps, E. S. (1968). Journal of political economy, 76(4, Part 2), 678-711.Economic methodology in the face of uncertainty: the modelling methods of Keynes and the Post-Keynesians, Kregel, J. A. (1976). The Economic Journal, 86(342), 209-225.A welfare economics foundation for the full-employment policy, Otaki, M. (2009). Economics Letters, 102(1), 1-3. On reanalyzing the Harris-Todaro model: Policy rankings in the case of sector-specific sticky wages, Bhagwati, J. N., & Srinivasan, T. N. (1974). The American Economic Review, 64(3), 502-508.