Question : In case of an underemployment equilibrium, which of the following alternative is not true?
Option 1: Aggregate demand is equal to Aggregate supply
Option 2: There exist excess production capacity in the economy
Option 3: Resources are not fully and efficiently utilized
Option 4: Resources are fully and efficiently utilized
Correct Answer: Resources are fully and efficiently utilized
Solution : The correct answer is (d) Resources are fully and efficiently utilized.
In case of an underemployment equilibrium, resources are not fully and efficiently utilized. This means that there is a level of output and employment in the economy that is below its potential. This occurs when aggregate demand is less than aggregate supply, resulting in excess production capacity.
In an underemployment equilibrium, there is slack in the economy, indicating that resources such as labor and capital are not being fully utilized. This can be seen as a gap between actual output and potential output.
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