What does 'full employment' refer to?

'Full employment' refers to a situation in an economy where all available labor resources are being used in the most efficient way possible. This concept specifically emphasizes the absence of cyclical unemployment, which is unemployment caused by economic downturns or recessions.

When an economy is at full employment, it does not mean that the unemployment rate is zero; rather, it indicates that only frictional and structural unemployment exists. Frictional unemployment occurs when individuals are temporarily unemployed while transitioning between jobs, and structural unemployment arises from a mismatch between workers' skills and job requirements.

Thus, the correct description of full employment focuses on the absence of cyclical unemployment, as this distinction provides a clearer understanding of labor market dynamics in a stable economy. The other choices fail to capture this essential concept accurately. For instance, stating that full employment corresponds to 0% unemployment ignores the normal presence of frictional and structural unemployment, while defining it by a specific percentage of cyclical unemployment does not encompass the broader definition that includes various types of unemployment.