Above Full-Employment Equilibrium
What it is:
Above full-employment equilibrium occurs when a country's gross domestic product (GDP) is higher than normal.
How it works (Example):
For example, let's say Country X's normal rate of year. Over the last two years, however, has grown by 5% a year. The country is experiencing above full-employment equilibrium. The term's reference to employment reflects the fact that the country is producing goods at a higher rate that it normally does when everybody has a job (full employment).growth is 2% per
Why it Matters:
Above full-employment equilibrium sounds like a good thing, and it generally is a sign that a country is doing well. However, above full-employment equilibrium can also lead to inflation. That's because the country is running at full capacity and can't produce more goods and services than it already is producing, which can lead to supply shortages, which in turn drive up prices. Accordingly, the condition many economists on alert.