Final answer:
Changes in the unemployment rate are closely correlated with changes in real GDP. During recessions or contractions, real GDP decreases, leading to higher unemployment rates. During periods of economic growth or expansion, real GDP increases, resulting in lower unemployment rates.
Step-by-step explanation:
In general, changes in the unemployment rate are closely correlated with changes in real GDP. When the economy is in a recession or contracting, real GDP decreases and unemployment tends to rise. Conversely, during periods of economic growth or expansion, real GDP increases and unemployment tends to decline.
For example, during the 2008 financial crisis, the United States experienced a significant increase in unemployment as real GDP declined. This correlation exists because businesses typically adjust their workforce in response to changes in economic conditions. When demand for goods and services decreases, businesses may lay off workers, leading to higher unemployment rates. On the other hand, when demand increases, businesses may hire more workers, resulting in lower unemployment rates.
It is important to note that the correlation between changes in the unemployment rate and real GDP may not be immediate. There can be a lag in the response time of businesses to economic conditions. For instance, firms may wait for some time before laying off or hiring workers in response to changes in sales and demand.