Which economic term signifies when the economy cannot sustain full employment?

The term that signifies when the economy cannot sustain full employment is the deflationary gap. A deflationary gap occurs when the actual level of output in an economy is below its potential level, leading to higher unemployment and underutilization of resources. This situation indicates that the economy is not performing at its full capacity, and as a result, there are not enough jobs available for those seeking employment.

This contrasts with the other types of unemployment. Cyclical unemployment is related to economic downturns when demand for goods and services decreases, leading to job losses. Structural unemployment arises from changes in the economy that make certain skills obsolete, while frictional unemployment refers to short-term transitions individuals face when moving between jobs.

In the case of a deflationary gap, the key characteristic is the inability of the economy to attain or maintain full employment due to insufficient aggregate demand. Thus, this concept is critical for understanding economic performance and the need for policy interventions to stimulate demand in order to achieve full employment.