Question

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?A) It will rise, because 2 million people are not in the labor force this month and are not counted as unemployed.
B) It will fall, because 2 million people are not in the labor force this month and are not counted as unemployed.
C) It will be unaffected, because the same number of people is unemployed.
D) Not enough information is provided to determine what happens to the
unemployment rate.

Answer 1

Answer:

B) It will fall, because 2 million people are not in the labor force this month and are not counted as unemployed.

Explanation:

Since the 2 million people were counted in the previous month owing to the fact that they were in the labor force, and this month they are no more in the labor force, this means that the unemployment rate will fall as the 2 million people will not be counted among the labor force, hence the total number of unemployed people will reduce and hence the rate, since the rate is calculated as the number of unemployment in the labor force divided by the total labor force.