CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

The unemployment rate is likely to understate the rate of actual unemployment because ______

I. different ethnic groups have different unemployment rates.
II. some people choose to remain unemployed.
III. discouraged workers are not officially counted as unemployed.
IV. students are not officially counted as unemployed.
A. II and IV
B. III and IV
C. III only
Explanation: Discouraged workers, who would like to have jobs but have stopped actively looking, are not counted as unemployed, and thus the rate of unemployment may be understated (there are other reasons, such as underemployment, as well).

User Contributed Comments 5

User Comment
Cata The answer is un-clear: discourajed workers...of what? that their football team lost? must be discouraged & UNEMPOLYED workers...
jjowen well, according to the definition of discouraged workers, they are unemployed. This is implicitly assumed.
mtcfa Students are not members of the labor force and therefore not considered in the equation as employed or unemployed.
danrow Well, discouraged workers are not considered as part of the labor force thats why they are not counted towards unemployment.
flpe1047 Unemployment rate = unemployed / labor force. Since the discouraged workers are not available for work they are not considered unemployed (decrease unemployment by discouraged workers). They are also excluded from the labor force so the same decrease occurs in the labor force. The numerator is lower than the denominator, so an equal decrease in both will result in an overall reduction in the unemployment rate.
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