Will a decrease in the unemployment rate cause a shift on a production possibilities curve/frontier?

Less labor in an economy reduces the potential output.

More labor (decreased unemployment) increases the potential output of an economy.

Beware when doing this quantitatively, however, as labor has diminishing returns if not coupled with capital or tech progress.

Will a decrease in the unemployment rate cause a shift on a production possibilities curve/frontier?rate my

Hi,

Yes, because if unemployment is decreased, households has more income (they are working), a part of the income is saved and the other part is consumed for goods %26amp; services(increase in demand). When firms feel this increase in demand, they will increase their production (output), they will hire more, househols will consume more.....