B. if discouraged workers aren't counted in the labor force, does the unemployment rate become a better or worse indicator of the state of the economy?

The unemployment rate does not count it discouraged workers becomes the worse indicator of the state of the economy.

Explanation:

Discouraged workers are essentially unemployed. Such workers have not been able to find employment for a long time and thus became discouraged from employment. They are different from generally unemployed because they are not seeking employment actively. For example, they have alternative sources of income or other assets which let them to stay unemployed.  

If these people are not counted in the unemployment rate, the state does not develop a system to bring them back into the active labor force, because they require different approach from generally unemployed. In essence, a state has a number of people who could contribute to the economy otherwise.