The cconomy is considered to be at full employment when (1) frictional plus structural unemployment is less than the natural rate. (2) the rate of cyclical unemployment is zero. (3) structural unemployment is zero. (4) the actual rate of unemployment is less than the natural rate. 5) the leading economic indicators are unchanged for two consecutive quarters. (3)

The correct answer is **(2) the rate of cyclical unemployment is zero**. **Explanation:** Full employment in an economy doesn't imply that everyone is employed without exception. Instead, it means that the only types of unemployment present are **frictional** and **structural**: 1. **Frictional Unemployment:** This occurs when people are temporarily between jobs or are entering the workforce for the first time. 2. **Structural Unemployment:** This arises from mismatches between workers' skills and the skills needed for available jobs or from changes in the economy that alter the demand for certain jobs. **Cyclical Unemployment**, on the other hand, is related to the business cycle and occurs during periods of economic downturns when there's insufficient demand for goods and services, leading to job losses. At full employment: - **Cyclical unemployment is zero**, meaning the economy is not experiencing a downturn that causes additional unemployment. - Only frictional and structural unemployment exist, which are considered natural parts of a healthy, functioning economy. **Why Option (3) is Incorrect:** - **Option (3):** *"structural unemployment is zero."* Structural unemployment typically exists even at full employment because some level of job mismatch and transitions in the labor market are normal. It's unrealistic to expect structural unemployment to be entirely zero. **Summary:** Full employment is achieved when the economy is operating at a point where only natural (frictional and structural) unemployment exists, and there is no cyclical unemployment. Therefore, **Option (2)** correctly identifies that full employment occurs when the rate of cyclical unemployment is zero.