As we approach full employment, what will probably happen? (LO1,2) a) \(\mathrm{V}\) will fall d) P will rise b) Q will fall e) P will fall c) Q will rise

Full employment is a situation in which all available labor resources are being used in the most efficient way possible – in other words, there is no cyclical or involuntary unemployment. It doesn't mean that 100% of the people are employed, as some frictional and structural unemployment will always exist. At this level of employment, the economy is producing at its maximum potential output.

In order to better explain the possible effects of approaching full employment, it is important to first explain the meaning of the given variables: - V: Velocity of money (how fast money changes hands in an economy) - P: Price level (average prices for goods and services) - Q: Quantity of output (i.e., real GDP) Now let's analyze each of the given options: a) V will fall: As the economy approaches full employment, there might not be a significant impact on the velocity of money. It depends on several factors like money supply, interest rates, and people's spending habits. b) Q will fall: As we approach full employment, the quantity of output is likely to increase because more labor resources are being used in the most efficient way possible. Therefore, this option is not correct. c) Q will rise: This option is more plausible than option (b), as the economy is producing at its maximum potential when approaching full employment. The quantity of output is likely to increase. d) P will rise: Approaching full employment implies that there is high demand for labor and other resources, which can lead to an increase in wages and input costs. As a result, businesses may increase the prices of goods and services in order to cover these increased costs. This can lead to a rise in the overall price level. e) P will fall: This option is not consistent with the dynamics of approaching full employment. When the economy is close to full employment, it's more likely for the price level to rise due to increased demand for resources.

Based on the analysis, the most probable outcome of approaching full employment is: d) P will rise As we approach full employment, the increased demand for labor and other resources can lead to a rise in wages and input costs, causing businesses to increase prices for goods and services, which in turn results in a higher price level.