According to the theory of John Maynard Keynes, equilibrium is established at which of the following levels?
Answer & explanation
Correct answer: option 3
The correct answer is Option 3: Full employment, less than full employment and more than full employment
According to John Maynard Keynes's theory, equilibrium in an economy can be established at different levels of employment, not just at full employment. Keynesian theory suggests that equilibrium is achieved when aggregate demand equals aggregate supply, which can occur at:
- Full employment
- Less than full employment
- More than full employment
Thus, equilibrium is not limited to just full employment but can also occur in situations of unemployment or even in scenarios where the economy is producing beyond its sustainable capacity (though such scenarios are less typical in Keynesian models).