An increase in output will cause the unemployment rate to fall by a larger percentage if

Question

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If firms are not holding excess labor, an increase in output will require firms to hire new workers, which will result in more people being employed and the unemployment rate falling by a larger percentage. If firms are holding excess labor (Option A), an increase in output may not require hiring new workers, so the unemployment rate may not fall as much. Option C and D may also result in increased output, but they do not necessarily lead to a larger decrease in the unemployment rate.

An Increase in Output Will Cause the Unemployment Rate to Fall