Initially an economy has 90 million people employed, 10 million people unemployed, and 15 million people not in

the labor force. Because of a new round of tax cuts, households expectations for the economy improve. 4 million people who previously were not in the labor force now join it. Now there are 92 million employed. What happens to the unemployment rate? Provide an economic explanation as to what happened to the unemployment rate and why ?

 

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