Why is the economy operates away from full employment from time to time?

Question

Why is the economy operates away from full employment from time to time?

Answer 1

Governmental policies are typically used to sustain full employment, the only times that an economy will not be at full employment is if 1. there is an economic boom 2. monetary or fiscal policy is used to prevent interest rates from increasing or decreasing in order to combat decrease in investment or inflation 3. in order to prevent a country's currency from losing value, a country might use fiscal or monetary policy that operates away from full employment

Answer 2

What do you mean by full employment? Whatever your definition, it is almost certainly not what economists call "full employment" and the economy is almost never exactly at "full employment" no matter what your definition.

Almost no one want the economy to be at full employment and the Federal Reserve tries to make sure it never gets that bad. They never want employment to go above the "Non-Accelerating Inflation Rate of Unemployment"

http://en.wikipedia.org/wiki/Full_employ...

But though it is clear that as unemployment shrinks, wages and hence inflation tends to go up, the relationship is by no means constant, there is no reason to believe that there is a value for the NAIRU, and it is clear that the Fe doesn't have the level of control that all the elementary theory seems to imply it has.

Also, there are exceptions to not wanting full employment. For example, during WW II, the government encouraged people who weren't looking for or wanting to work to do so. Does that mean that the economy was running above "full employment"?

A better question, why should the economy operate anywhere near full employment for any length of time? There are all sorts of arguments for what happens "in the long run" or "in steady state", but the economy hasn't seen a steady state in centuries.

Things are just changing too quickly for the economy to fully stabilize: technologies being developed, products becoming obsolete so the people producing them no longer have work, etc.

When things are changing, we should expect greater unemployment; when the economy is bad we should expect greater unemployment; so what does that leave for the times when we should expect lower unemployment?