Which scenario describes a situation of full employment?

The scenario that accurately describes a situation of full employment is when all willing individuals are employed. Full employment does not mean that every single person in the economy has a job, but rather that there is no involuntary unemployment. This implies that anyone who is willing and able to work at the prevailing wage rates can find employment.

This concept acknowledges that some level of frictional unemployment—where individuals are in between jobs or entering the workforce for the first time—is natural and does not indicate inefficiencies in the labor market. The goal of full employment is to match available jobs with qualified workers, leading to a situation where the labor market is effectively utilizing its resources without excess unemployment.

In contrast, scenarios like producing below potential output or experiencing high levels of inflation indicate inefficiencies in the economy, while significant voluntary unemployment suggests that individuals are choosing not to work, which does not align with the definition of full employment.