Sunday, May 10, 2009

In an economy at full employment, Y=C+I+G+NX. Define: full employment. What are the component parts of the for

In an economy at full employment, Y=C+I+G+NX. Define: full employment. What are the component parts of the formula? Would you consider our Economy at Full Employment now? Why or why not?

In an economy at full employment, Y=C+I+G+NX. Define: full employment. What are the component parts of the for
Y = output, C = consumption, I = investment, G = Government spending, NX = net exports.





Full employment is that employment where the labor force is employed at the NAIRU (although this is debatable). NAIRU stands for Non-accelerating inflationary rate of unemployment. The most recent Nobel prize went to a fellow by the name of Phelps, who worked on this very problem.





In accordance with my above answer of full employment, the answer, as is most things in macro economics, unclear. Inflation has been creeping in to the economy as of late, which would imply that employment is low (according to this model). However, we have had lower rates of unemployment only recently with less inflation. That said, the economy is not static and the economy is not the same as the economy of yesterday, so, again, this implies that we are at or near full employment.





Also, see the reference.


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