If an unemployed person quits looking for work, ceteris paribus, the unemployment rate?

a) decreases, and the participation rate increases

b) decreases, and the participation rate decreases

c) stays the same, and the participation rate decreases

d) and the labour force participation rate stay the same

According to the answer key, the answer is D. Why is the answer D rather than B?

2 Answers

  • The answer is B. Based on ILO's definition they will not be counted as labor force. But they were counted as frictional unemployed before. So the answer is the unemployment rate will decrease and the participation rate will decrease.

  • I agree with you the answer is B if they mean discouraged workers.

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