2023 AP Macroeconomics FRQ Set 2 #3 (Unemployment)

 2023 AP Macroeconomics FRQ Set 2 #3 (Unemployment)

3. Assume that in the country of Zeta, the civilian noninstitutional population aged 16 and over is 1,000,000. The labor force participation rate is 70%, the unemployment rate is 9%, and the natural rate if unemployment is 5%.

 

A) Calculate the number of people in Zeta that are unemployed. Show your work.

 

The unemployment rate is the unemployed/ labor force

Or

Unemployment / employed + unemployed

The labor force is the unemployed + employed

 

1,000,000 x .7 = 700,000 is the labor force

 

The unemployment rate is 9% and 9% of 700,000 = 63,000 (unemployment number)

The employed would be 91% = 700,000 x .91 = 637,000 (employed number)

 

(a) 700,000 x 9% = 63,000

B) Is the economy of Zeta currently experiencing a recessionary gap, an inflationary gap or no output gap? Explain.

 

The natural rate of unemployment (also called the full employment level of unemployment)

 is 5% (as said in the question) but the actual rate of unemployment is 9%.

 

There is a higher level of unemployment than the natural rate of unemployment therefore there is a recessionary gap.

 

C) Consumer goods and capital goods are produced in the country of Zeta. Draw a correctly labeled graph of the production possibilities curve for Zeta. Indicate a point labeled A, that represents the current state of Zeta’s economy.

D) If some individuals that are counted as unemployed in Zeta stop looking for work, what will happen to each of the following:

 

(i) The labor force participation rate. Explain.

 

If some unemployed stop looking for work, they become discouraged workers. Discouraged workers are not considered part of the labor force as they aren’t unemployed or employed.

So, the labor force participation rate will decrease

 

(ii) The unemployment rate.

 

If people who were unemployed then choose to stop looking for work they get kicked off the unemployment rolls (list) becoming discouraged workers, therefore the unemployment rate has to decrease.