Question

when an unemployed person drops out of the labor force, it
a. affects the employment - population ratio.
b. does not affect the unemployment rate.
c. does not affect the employment - population ratio.
d. does not affect the labor force participation rate.

Explanation:

The employment - population ratio is calculated as \(\frac{\text{Number of Employed}}{\text{Total Adult Population}}\). When an unemployed person drops out of the labor force, the number of unemployed (and thus the labor force) decreases. Since the total adult population remains the same, and the number of employed is unchanged, the employment - population ratio (which is based on the total adult population) is not affected.
The unemployment rate is \(\frac{\text{Number of Unemployed}}{\text{Labor Force}}\). If an unemployed person leaves the labor force, both the numerator (unemployed) and denominator (labor force) decrease. The labor - force participation rate is \(\frac{\text{Labor Force}}{\text{Total Adult Population}}\), and since the labor force decreases, this ratio is affected.

Answer:

C. does not affect the employment - population ratio.