What does 'full employment' refer to?

'Full employment' refers to a situation in the economy where all available labor resources are being used in the most efficient way possible. Specifically, it means achieving a level of employment where there is no cyclical unemployment, which is unemployment caused by economic downturns or fluctuations in the business cycle.

When the economy is performing well, it is possible to have some level of frictional unemployment (the time it takes for people to transition between jobs) and structural unemployment (mismatches between skills and job requirements), but cyclical unemployment, which arises from downturns, is essentially nonexistent. Therefore, option C captures the idea that full employment signifies a healthy economy where workers are employed to their full potential without being affected by the ups and downs of the business cycle.

In contrast, a level of unemployment at 0% (first option) is unrealistic in any economy due to frictional and structural factors that will always exist. The notion of maintaining cyclical unemployment at a specific percentage such as 1% (second option) does not capture the holistic aspect of full employment, which primarily concerns the absence of cyclical factors rather than setting a numerical threshold. Lastly, the definition that includes all age groups (fourth option) is not directly relevant as full