Economists refer to full employment output as the potential output or natural level of output.
This term represents the maximum sustainable level of output that an economy can achieve when operating at full capacity, without generating inflationary pressures. At this level, all resources are utilized efficiently, and unemployment is at its natural rate, which includes frictional and structural unemployment but not cyclical unemployment.
When an economy is at full employment output, it is not necessarily devoid of unemployment; rather, it reflects a healthy labor market where people are voluntarily transitioning between jobs or acquiring new skills. Understanding this concept helps policymakers identify the output level where economic growth can continue without causing excessive inflation, guiding decisions in monetary and fiscal policy.