briefly explain the concept of under …

Under-employment equilibrium. Under-employment equilibrium means equality of aggregate demand and aggregate supply at less than full employment level. It is a state of equilibrium where level of demand is less than 'fall employment level of output'. In other words, in producing the output, all resources are not fully employed, i.e., some resources are under-employed. This situation is caused not by low level of aggregate supply but by deficiency of aggregate demand. When level of demand is less than full employment level of output, it is called deficient demand which pushes the economy into under-employment equilibrium. It results in deflationary gap, i.e., gap between aggregate demand and aggregate supply at full employment. The situation of under-employment equilibrium has been shown in Fig.(a),wherein full employment equilibrium is at point E but under-employment equilibrium occurs at point Ej because ADj curve intersects the same AS curve at E₁ due to inadequacy of demand. OM_T is the under-employment equilibrium level of income which is less than OM, the full employment equilibirum level of income. Since aggregate demand (AD) falls short of aggregate supply (AS) at full employment by EB, therefore, additional investment expenditure equal to the level of EB (i.e., deflationary gap) is required to reach the full employment equilibrium.

Note: In fact, the idea of under-employment equilibrium was introduced by Keynes who believed that an economy generally functions at less than full employment level, i.e., at under-employment equilibrium. Strictly speaking Keynes considered supply curve to be perfectly elastic with respect to prices till full employment level of output is reached. So the equilibrium depends upon level of aggregate demand. When aggregate demand falls short of full employment level of output, under-employment equilibrium occurs at the point where AD curve intersects horizontal aggregate supply curve before full employment level of output.