Justify the following statement : "Full employment is an essential condition to be fulfilled under Keynesian Economics Principles." "Involuntary Unemployment is a situation where an able bodied person unwilling to work does not get work at the prevailing wage rate." Do you agree with the given statement ? Elucidate briefly.

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Accepted Answer

The statement that full employment is an essential condition under Keynesian Economics is incorrect. According to Keynes, equilibrium can be achieved at any level of employment — full employment, underemployment, or even over full employment. Keynes rejected the classical assumption that the economy always tends towards full employment. The equilibrium is determined by the level of effective demand, not by the full employment condition.

Regarding involuntary unemployment: It refers to a situation where a person who is willing to work at the prevailing wage rate is unable to find employment. This occurs when aggregate demand is insufficient to create enough employment for all who want to work at the existing wage. Keynes argued that involuntary unemployment exists when the economy is in underemployment equilibrium, where AD = AS but below the full employment level.