Question

When may the unemployment rate underestimate the true extent of unemployment?

A. During economic growth
B. During a recession
C. When discouraged workers drop out of the labor force
D. When part-time workers transition to full-time positions

Answer 1

The unemployment rate may underestimate the true extent of unemployment when discouraged workers drop out of the labor force.

Step-by-step explanation:

The unemployment rate may underestimate the true extent of unemployment when discouraged workers drop out of the labor force. This is option C.

Discouraged workers are individuals who have given up looking for work because they believe no jobs are available for them. When these workers drop out of the labor force, they are no longer counted as unemployed, which leads to a decrease in the unemployment rate.

For example, let's say there are 100 unemployed individuals in a country with a total labor force of 1,000. In this case, the unemployment rate would be 10%. However, if 50 of the unemployed workers become discouraged and stop looking for jobs, they would no longer be counted as unemployed. The new unemployment rate would be calculated based on the remaining 50 unemployed individuals and the total labor force of 950, resulting in a lower unemployment rate of 5.26%.