When output increases by 1%, the unemployment rate ________ in the short run because as output increases, the size of the labor force increases.

Question

Quizplus · Accepted Answer

In the short run, when output increases by 1%, the unemployment rate does not necessarily fall by 1%. The relationship between output and unemployment is described by Okun's Law, which suggests that a certain percentage increase in GDP leads to a less than proportional decrease in the unemployment rate, but not necessarily a 1% decrease. The size of the labor force can increase, but this does not directly translate to a 1% fall in unemployment.

When Output Increases by 1%, the Unemployment Rate ________ in the Short