Suppose that roughly 8 million people in the United States were actively seeking jobs but had not found them this month, the same number as last month. Suppose that 2 million of the people who were unemployed last month gave up their search this month and stopped looking for work. What will happen to the official unemployment rate this month, all other things unchanged?

Question

Quizplus · Accepted Answer

The official unemployment rate is calculated by dividing the number of unemployed individuals by the labor force (those who are employed or actively seeking employment). Since 2 million people who were previously unemployed have stopped looking for work, they are no longer counted as part of the labor force. Therefore, the denominator of the unemployment rate calculation (the labor force) will decrease, resulting in a lower unemployment rate.

Suppose That Roughly 8 Million People in the United States