The level of income where all the factors of production are fully employed in the production process is called…………
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Full employment level of income
When an economy is working at full stretch, everyone who wants a job has one and no machine or factory stands idle. The income it earns at that point, where all the factors of production are fully employed in the production process, is called the full employment level of income.
The economy need not settle at this level. It is in equilibrium wherever aggregate demand equals output, and that can happen while some workers and machines are still idle:
if equilibrium output is below the full employment level, demand is too small to employ all the factors, which is deficient demand;
if it is above that level, there is excess demand.
Why the other options are incorrect
Option (1) Employment capacity level of income — Incorrect. There is no such term.
Option (2) Full unemployment level of income — Incorrect. There is no such term.
Option (3) Full utilization level of income — Incorrect. There is no such term.
Note: A same/similar question was asked in CUET (UG) in the papers below.
| 2026 | 2025 | 2024 | 2023 | 2022 |
| 21-05 S1 | 27-05 S2* | – | – | – |
* A similar question.
NCERT (2025-26): “4.4 Some More Concepts … 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.…” |