Question

How does a low unemployment rate affect a nation's economy?

Answer 1

If everyone has a job, then the production and sales of goods and services rise, which means that the GDP rises. That means that the economy is becoming stronger and stronger.

Answer 2

Labor is one of the factors of production used by all the productive spheres of an economy and its demand depends on the type of production activity.

 Some activities are labor-intensive and others are more intensive in inputs and technology. However, in all activities there is a combination of human capital and inputs that is used. This combination, when it reaches the maximum, exhausts at least one of the factors of production, and we say that the economy is close to potential GDP.

Potential GDP is a concept where the production of a country operates to the maximum, that is, producing at the limit of its installed capacity. In this way, low unemployment rates mean economic warming and high production, that is, the country is growing.