The CFA® Level 1: CFA® Level 1 Exam: Discouraged Workers during Severe Recession

Discouraged Workers during Severe Recession

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Question

When the number of discouraged workers increases during a severe recession,

Answers

A. the measured unemployment tends to overstate the severity of the unemployment problem.

B. the measured unemployment tends to understate the severity of the unemployment problem.

C. frictional unemployment will rise.

D. the natural unemployment will decline.

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Explanations

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A. B. C. D.

Persons who have given up searching for employment because they believe additional job search would be fruitless are termed discouraged workers. Because they are not current searching for work, they are not counted among the unemployed. As a result, the number of unemployed workers will be understated since unemployed individuals will drop out of the labor force and thus not be counted as unemployed.

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