Question

You open the newspaper and you see that the unemployment rate has gone down to 5%.  You start to cheer, but someone tells you to wait, that's not the full story. What do they mean?

	a.	They think unemployment should be 0%, not 5%.
	b.	They're just looking for more bad news.
	c.	It might mean too many people are working.
	d.	The labor force participation rate may have also gone down

Answer 1

The correct answer is D

When unemployment rate goes down it is possible that labour force participation rate has also gone down which might have aided the drop in unemployment

For example last time the labour force participation fell 4 months in a row in 2007-2009 recession.

As a result the labour force participation rate slipped to 62.9%. The sharing labour force participation became the primary factor behind unexpected decline.

Option A and B and c are baseless