Equilibrium below the full employment condition

In macroeconomics, equilibrium refers to a state where aggregate demand (AD) equals aggregate supply (AS). When the economy is operating below the full employment condition, it means that it is not utilizing all available resources and is producing below its potential. In such a scenario, the equilibrium can be described as follows:

AD > AS and resources are not fully utilized

When aggregate demand exceeds aggregate supply and resources are not fully utilized, the economy is operating below its full employment level. This indicates that there is a deficiency in demand for goods and services. Several factors can contribute to this situation:

1. Unemployment: In an economy operating below full employment, there is likely to be a significant level of unemployment. This means that there are people willing and able to work but are unable to find employment due to the lack of demand for labor.

2. Idle resources: The economy is not utilizing all of its available resources, such as labor, capital, and land. This could be due to businesses operating below their capacity, underutilization of machinery, or unused land.

3. Output gap: The difference between the actual level of output and the potential level of output represents the output gap. In this case, the output gap is negative, indicating that the economy is producing below its potential.

4. Underutilization of productive capacity: The economy has the potential to produce more goods and services, but it is not doing so due to the lack of demand. This leads to a waste of resources and a lower level of overall economic welfare.

5. Deficient aggregate demand: The main cause of equilibrium below full employment is a deficiency in aggregate demand. This could be due to a decrease in consumer spending, reduced investment, or a decline in government expenditure.

In conclusion, when the economy is in equilibrium below the full employment condition, aggregate demand exceeds aggregate supply, and resources are not fully utilized. This situation leads to high unemployment, idle resources, a negative output gap, underutilization of productive capacity, and deficient aggregate demand.

AD>AS AND RESOURCES AND NOT FULLY UTILISED