Underemployment equilibrium
- Underemployment equilibrium
In Keynesian economics, underemployment equilibrium refers to a situation with a persistent shortfall relative to full employment and potential output so that unemployment is higher than at the NAIRU or the "natural" rate of unemployment. This situation is not seen as solvable via "laissez-faire" polices of "letting nature take its course" (price adjustment). Instead, fiscal policy (i.e., deficit spending) or monetary policy is needed to "prime the pump" or "jump-start the economy" to abolish cyclical unemployment and the "GDP gap."
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