Consider the following statements about equilibrium and employment:
(A) The output at which Y equals AD need not be the output at which everyone is employed.
(B) At equilibrium, all the factors of production are fully employed.
(C) At equilibrium, if left to itself, the level of income will not change even when there is unemployment.
(D) The equilibrium output of an economy determines its level of employment, given the quantities of other factors of production.
Which of the statements given above are correct?
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A), (C) and (D) only
(A) The output at which Y equals AD need not be the output at which everyone is employed. — Correct. Equilibrium output need not employ everyone.
(B) At equilibrium, all the factors of production are fully employed. — Incorrect. Equilibrium by itself does not signify full employment.
(C) At equilibrium, if left to itself, the level of income will not change even when there is unemployment. — Correct. Equilibrium only means that income will not change on its own.
(D) The equilibrium output of an economy determines its level of employment, given the quantities of other factors of production. — Correct. More output needs more workers, so output decides employment.
NCERT (2026-27): “4.4 Some More Concepts The equilibrium output in the economy also determines the level of employment, given the quantities of other factors of production (think of a production function at aggregate level). This means that the level of output determined by the equality of Y with AD does not necessarily mean the level of output at which everyone is employed. Full employment level of income is that level of income where all the factors of production are fully employed in the production process. Recall that equilibrium attained at the point of equality of Y and AD by itself does not signify full employment of resources. Equilibrium only means that if left to itself the level of income in the economy will not change even when there is unemployment in the economy.” |