Classical viewpoint explains the income equilibrium level at full employment level, i.e, aggregate demand can equal aggregate supply only at a point of full employment. Contrary to it, according to Keynesian viewpoint aggregate demand equals aggregate supply at the point before full employment level (i.e takes place at under full employment level). Aggregate demand has to be increased for increasing employment in the economy. I,e. in Keynesian viewpoint, under full employment equilibrium can be converted to full employment equilibrium only by increasing aggregate demand. According to Keynes, “under employment equilibrium is a situation in which aggregate demand (which is less than full employment aggregate demand)is equal to aggregate supply so that there is equilibrium but some resources remain unemployed.”
In this situation, factors are not fully employed and all laboures do not get employment. According to Keynes under employment situation appears due to deficient aggregate demand but not due to deficiency of aggregate supply.
In fig, at on,employment level, AD = AS but it is a situation of under-full employment. When aggregate demand AD increases to AD, full employment level on is obtained.
