Suppose there are 5 million unemployed workers seeking jobs. After a period of time, 1 million of them become discouraged over their job prospects and cease to look for work. As a result of this,
All else equal, the oﬃcial unemployment rate would
A) decline.
B) increase.
C) increase in the short run but eventually decline.
D) be unchanged.

Question

Quizplus · Accepted Answer

The official unemployment rate is calculated by dividing the number of unemployed individuals by the total labor force (employed plus unemployed individuals actively seeking work). If 1 million unemployed individuals cease to look for work, they are no longer considered part of the labor force, and therefore are removed from both the numerator and denominator of the unemployment rate calculation. This will result in a decrease in the unemployment rate, assuming all else remains equal.

Suppose There Are 5 Million Unemployed Workers Seeking Jobs