The measured unemployment rate does not fall as much as one might expect when output increases because, as the economy expands,

Question

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As the economy expands, more people may decide to enter or re-enter the labor force, either because they were previously discouraged from finding work or because they feel that there are now better job opportunities available. This means that even as firms are hiring more workers, the number of people seeking employment may also increase, which can prevent the unemployment rate from falling as much as one might expect.

The Measured Unemployment Rate Does Not Fall as Much as One