If a nation's maximum GDP (with 0% unemployment) is $20 trillion,(a) How much is full employment GDP (with 5% unemployment)?

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gsenviro eNotes educator| Certified Educator

Gross Domestic Product or GDP is a measure of the total value of all the goods and services produced in a country in a given time. In contrast, full employment GDP refers to the scenario when all the resources (materials and human resources) of a country are being utilized to the maximum possible extent. This is an ideal economic situation and represents the maximum possible productivity of an economy. 

Here, the maximum GDP at 0% unemployment level is given as $20 trillion. This is the same as full employment GDP. When 5% employment is there, we can assume 5% loss in the maximum GDP level. Hence the full employment GDP at 5% unemployment would be $19 trillion (= 95% of $20 trillion= 0.95 x $20 trillion).

Hope this helps.