Consider the following scenario: In January, 8 million people were seeking jobs but did not succeed. In February, 2 million of these people gave up and stopped looking for work. Holding all else constant, what happened to the unemployment rate in February?

Question

Quizplus · Accepted Answer

The unemployment rate is defined as the number of unemployed people divided by the total labor force (which includes both employed and unemployed people actively seeking jobs). In this scenario, the total labor force in January was 8 million + X (where X is the number of employed people). If 2 million people stopped looking for jobs in February, then the total labor force in February would be 6 million + X. Since the number of unemployed people did not change (remaining at 8 million), the unemployment rate decreased because the denominator (total labor force) decreased. Therefore, the unemployment rate decreased from January to February.

Consider the Following Scenario: in January, 8 Million People Were