When will the economy be able to maintain its full-employment level of GDP?

The ability of the economy to maintain its full-employment level of GDP is closely tied to the concept of flexible wages in the long run. When wages are flexible, they can adjust in response to changes in economic conditions. This means that if there is an economic downturn or a decrease in aggregate demand, wages can decrease, allowing businesses to lower their costs without laying off workers. As a result, employment can be maintained, and the economy can stabilize at its full-employment level of GDP.

In an environment where wages are not flexible, any adverse shocks to the economy could lead to higher unemployment rates, as companies would be unable to adjust labor costs effectively. This could push the economy away from its full-employment output. Thus, the adaptability of wages is crucial for the economy's ability to return to its potential output after fluctuations.

A stable price level contributes to an environment conducive to maintaining full employment, but it does not directly lead to the flexibility needed in wages. High consumer spending is beneficial for stimulating demand, but it doesn't ensure that the economy can sustain full employment under various economic conditions. Additionally, a decrease in aggregate demand generally does not help maintain full employment; rather, it can lead to increased unemployment and output gap. Hence, the emphasis on