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Suppose that due to a poor economy, 1 million workers lost their jobs, causing the unemployment rate to increase to 10%. After a few months of searching, 300,000 of these unemployed workers give up looking for work. How would the decision by these 300,000 people affect the unemployment rate, all else equal

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Answer:

The unemployment rate would decrease.

Explanation:

The unemployment rate only takes into account economically active people, that is, people who are actively searching for a job. This means that if 300,000 people give up looking for work, they are not considered unemployed anymore and only 700,000 of the original 1 million workers who lost their job will be counted towards the unemployment rate. Consequently, the unemployment rate would decrease.

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