Below Full Employment Equilibrium

  

Categories: Econ, Banking

When an economy is operating at a level of GDP that is less than its long-term potential GDP, usually preceding a recession.

Over the long-term, Wakanda's combination of Vibranium, technology, and population can produce a GDP of $1 trillion per year. However, in 2018, many citizens left to spend several months visiting Hollywood studios, and the remaining citizenry was only able to generate $690 billion of GDP. If this below full employment equilibrium persists, Wakanda will suffer an economic recession, so hopefully those Hollywood studios don't have any sequels lined up.

Related or Semi-related Video

Finance: What is the Unemployment Rate?15 Views

00:00

finance a la shmoop what is the unemployment rate so negative like

00:09

shouldn't it be the employment rate at least that way we'd have a bigger number

00:13

and bigger is better in the u.s. right well anyway the unemployment rate in

00:16

this country is tracked carefully because it's one of the Canaries in the

00:20

mine shaft giving us an early heads-up on the direction of the economy well [canary hopping in cage in mineshaft]

00:25

jobs are generally highly volatile in a given range and the government copiously

00:29

inspects this data as it affects so many other things principally the costs of

00:34

renting money has set out by the Fed because high employment stimulates

00:38

inflation and low does the opposite well the government's gonna ask is the

00:42

unemployment rate shrinking too fast I eat everyone's getting jobs well if so [government officials in conference]

00:47

then beware inflation is coming which historically has motivated the Fed to

00:52

raise interest rates in response or constrict the supply of cash out there

00:57

and the opposite is true as well one of the big cocktail party conflicts and if

01:01

you find yourself at a cocktail party debating this notion make like the

01:04

Jordan Peele movie and get out but if you can't and you must debate well there

01:09

is a quote natural rate unquote of unemployment of around five or six

01:13

percent yeah zero percent unemployment ain't never

01:16

gonna happen generally the higher the unemployment rate the worse shape the

01:20

economy is in but remember the unemployment rate doesn't tell the whole

01:24

story the government can help create a bunch of temporary or low-paying jobs

01:28

too cosmetically raise the employment rate in the short term like ahead of an [happy government officials in conference]

01:32

election but the quality of those jobs is probably not great like think temp

01:36

workers at the DMV well after a while of longer term unemployment some people [long line at the DMV]

01:41

will just give up hunting for jobs and if they don't even go on indeed or

01:45

Glassdoor looking for work so they're kind of permanently in the unemployment

01:49

numbers so the unemployment rate might seem to be a bit less dire in that case [unemployed people holding up cardboard signs]

01:53

but in fact well there might still be a lot of people who needed jobs out there

01:56

we don't know we're just looking for some numbers to help us direct

01:59

understanding of where the economy has gone and help us then tweak things so

02:03

interest rates are optimized at the inflation numbers that we want to hit

02:07

got it not everyone is qualified to stick that thing on the back of your

02:11

license plate that shows you red yeah a whole lot of government workers I [hand adds stickers on back of license place]

02:14

guess do that now bad times

Up Next

Finance: What is Inflation and How Does It Work?
46 Views

What is inflation and how does it work? Inflation is the gradual increase in prices over time. You might today pay 100x for the commodity coffee wh...

Find other enlightening terms in Shmoop Finance Genius Bar(f)