ABSTRACT
National income and employment are often discussed interchangeably. This chapter will examine the precise relation between national income and total employment. To be specific, we shall analyse the theoretical possibilities of full-employment and unemployment equilibria (a) in a purely private, closed economy without the government sector and the foreign trade sector, and (b) in a mixed, open economy with those sectors. However, we shall be concerned with the phenomenon of mass unemployment in the short run, thereby precluding both that unavoidable minimum unemployment which is known as ‘frictional unemployment’ and that long-run unemployment which is called ‘secular underemployment’. 1 In other words, we shall be concerned with the technical conditions of full-employment equilibrium, taking relative factor prices, technology, population, and capital as given. Employment will then be seen as a function mainly of effective demand, though effective demand must be specified in different contexts.
