A survey reveals that, on a small island, initially 100 people have jobs, 25 people don't have jobs but are looking for jobs, and 45 people are neither working nor looking for work. Suppose that 15 of the 45 people who weren't looking for work now begin looking for work. There are now 40 people looking for work and 100 people working. The unemployment rate:
A) falls to 20%.
B) rises to 28.6%.
C) rises to 50%.
D) Nothing happens to the unemployment rate because these people weren't working before and they aren't working now.

Question

Quizplus · Accepted Answer

Initially, the unemployment rate was (25/125) x 100% = 20%.
After 15 of the 45 people who weren't looking for work now begin looking for work, there are 40 people looking for work and 60 people who are neither working nor actively seeking employment.
Therefore, the new unemployment rate is (40/100) x 100% = 40%.
This represents an increase of (40%-20%) / 20% = 100%.
Therefore, the unemployment rate rises to 28.6%.

A Survey Reveals That, on a Small Island, Initially 100