Economics Part B

Table of Contents

The Nature of Unemployment

Residents of a country do not always adapt their needs appropriately in relation to the country’s production capacity. For example, in country A (which is very small), only bread is produced. The production capacity under full production is 1,000 loaves of bread each day, but unfortunately the residents require only 800 loaves of bread each day. In this situation, some bakeries will reduce their production, and lay off workers. As a result, country A’s GDP will fall to 800 loaves of bread.

When full production capacity in a country is attained, then its GDP is at a maximum level, and we denote it as YF (the letter Y stands for GDP, and the letter F is an abbreviation of “full”).