How does the price level bring the economy back to full employment?

Answer 1

Price Level. The GNP deflector is the most comprehensive measure of the price level. It is a weighted average of prices of all goods and services produced in the economy. It is released quarterly along with data on GNP. A rate of increase in the deflator of 3 or 4 % on an annual basis is healthy.

Two somewhat narrower measures of inflation are released monthly: the consumer price index and producer price index. As suggested by their names, the former measures the rate of change in prices of goods purchased by the typical consumer, while the later measures price changes at the wholesale level. For obvious reasons, although the consumer price index is less comprehensive measure of the price level than the GNP deflator, it receives the lion's share of attention because it measures how inflation influences each of us directly in our role as consumers.

Answer 2

Price affect demand and supply. By tweaking the price level it can create a change in the demand and supply in the economy. If price is relatively cheaper, it will in theory generally increase demand and thus the increase of supply to meet such demand. supply can only be increased by increasing production, hence increase in the usage of raw material, employment and so forth. As such price level does play an important role in determining the rate of employment in an economy.