Explain the meaning. of under employment equilibrium. Explain two measures by which full employment equilibrium can be reached.
Under employment equilibrium occurs when AS = AD, short of their full employment level. Measures to correct under employment equilibrium:
(i) Bank rate Central Bank should decrease the bank rate. A decrease in bank rate lowers the rate of interest and credit becomes cheap. Accordingly, the demand for credit expands and Aggregate Demand increases.
(ii) Open market operations By buying the government securities, the Central Bank injects additional purchasing power into the system which results in the expansion of credit. As a result, Aggregate Demand increased.