Question

Suppose that due to a poor economy, 1 million workers lost their jobs, causing the unemployment rate to increase to 10%. After a few months of searching, 300,000 of these unemployed workers give up looking for work. How would the decision by these 300,000 people affect the unemployment rate, all else equal?a) The unemployment rate would increase.b) The unemployment rate would decrease.c) The unemployment rate would remain unchanged.d) There is not enough information to answer this question.

Answer 1

The correct answer is:

The unemployment rate would remain unchanged (d)

Step-by-step explanation:

Unemployment rate is defined as the percentage of unemployed labor, in a total labor force. That is the percentage of people willing and able to work, but not working because there are no jobs available for them. Considering this definition, we see that the 300,000 people who have given up looking for jobs, are still able and willing to do so, despite being discouraged, hence, when the unemployment rate of the total labor force is to be calculated they will be counted also.