If the number of employed and the working age population remain constant, what are the effects of a decrease in the labor force on the unemployment rate and the participation ratio? 

A. Both will increase. 

B. Both will decrease. 

C. One will increase and the other will decrease.

Correct answer:B

Since the labor force is the sum of employed and unemployed, a decrease in the labor force with the number employed held constant will decrease the unemployment rate (the number of unemployed divided by the labor force). The labor force participation rate is the labor force divided by the working-age population. If the labor force decreases while the working-age population remains the same, the participation rate will decrease.