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.

 2021 (Set 1) AP Macro FRQ#3

watch me answer it here

https://youtu.be/Aza1drO05qQ

A) What is the numerical value of the cyclical rate of unemployment in Flowerland?

The NRU (Natural rate of unemployment) is 5%

The NRU consists of Frictional & Structural unemployment

NRU = 5% = Frictional 4% + Structural 1%

Actual Unemployment = 7% = (Recession) in recessions we have cyclical unemployment

Actual Unemployment = 7% - NRU (5%) = 2% cyclical unemployment

B) Assume the foreign demand for lavendar oil produced in Flowerland increases. What will happen to each of the following  in Flowerland in the short-run?

(i) Aggregate Demand? Explain.

Foreign demand increases meaning that exports increase which increases aggregate demand.

(ii) Cyclical Unemployment? 

As Aggregate Demand increases cyclical unemployment will decrease as we move further and further out of a recession.

C) Assume 2019 is the base year. Calculate the 2020 Price Index.

 Understand that in the Base Year NGDP = RGDP and the CPI is always 100

NGDP/RGDP x 100 = CPI

so

200/200 = 1 (x 100) = CPI of 100 for 2019

Understand that in 2020 the NGDP = 260

2020 RGDP is (Quantity x Prices in the Base Year) or 200 = RGDP

NGDP/RGDP x 100 = CPI

so

260/200 = 1.3

1.3 x 100 = 130

CPI for 2020 = 130

D) If nominal income in Flower increased by 20% from 2019-2020, what happens to the standard of living? Explain.

In 2019 the CPI (inflation was 0) was 100 , always 100 in the base year

In 2020 the CPI is 130 therefore the inflation rate increase by 30% from 2019

If the people's wages (nominl income) only increased by 20% 

but the price of everything (inflation) increased by 30% 

then 

their real wages (real income) decreased by 10%

They can buy 10% less stuff after their raises and inflation take effect.

Their purchasing power, standard of living  and real wages decreased by 10%

ALL Unemployment FRQ's

ALL Unemployment FRQ's

Obviously this isn't all of the places where they ask about the unemployment
but
You should know that if AD increases, cyclical unemployment decreases
If the MS increases unemployment decreases
The FRQ's below are in depth and out of the norm unemployment questions.

2018 AP Macroeconomics Exam

2006 AP Macroeconomics Exam

2005 AP Macroeconomics Exam

2003 AP Macroeconomics Exam

52 - C

53 - B

2018 AP Macroeconomics FRQ #3

2018 AP Macroeconomics FRQ #3

2017 AP Macroeconomics FRQ #1

2017 AP Macroeconomics FRQ #1

watch me answer it here

https://youtu.be/RC5FnxOLyRU

(A) Using the numerical values above, draw a CLG of the short-run and long-run Phillips curves. Label the current short run  equilibrium as point B. Plot the numerical values above on the graph.

I find it's most beneficial to draw AD/AS curve with Phillips curves.

Phillips Curve Cheat Sheet here.

Understand that a country with a higher unemployment 7% compared to 5%, and with a low inflation rate of 3% that the appropriate AD?AS curve would be a recessionary curve.

The Phillips curve is fairly simple, helps to know that 

a shift of the AD curve is a movement on the SRPC.

It also helps to know that the NRU or natural rate of unemployment is at full employment (equilibrium)

Answer

(B) Assume the government of X takes no policy action to reduce unemployment. In the long-run, will each of the following shift to the right, left or remain the same?

(i) Short-run aggregate supply curve. Explain.

In the long-run employees will accept lower wages, wages are a resource cost, lower wages will shift the SRAS curve rightward, prices will fall and therefore output will increase back to long-run equilibrium at a lower price level.

(ii) Long-run phillips curve

The long-run phillips curve is unaffected but the short-run phillips curve would shift leftward, inflation would decrease and unemployment would decrease back to the NRU, natural rate of unemployment.

Answer

(C) Identify a fiscal policy action that could be used to reduce the unemployment rate in the short-run.

In the short run the government could use an expansionary fiscal policy (tax lowered or more government spending), 

Fiscal Policy Cheat Sheet here.

Answer

(D) Draw a CLG of the AD/AS graph, showing the effects on equilibrium, PL and RGDP from an expansionary fiscal policy.

As the government spends, consumption increases pushing AD rightward, PL increases and RGDP increases along with (Y) real incomes.

Answer

(E) Based on the change in real GDP identified in part (D), will the supply of County X's currency in the FOREX, increase , decrease, or remain the same? Explain.

Look at the Y, real income above. It is increasing, if incomes are increasing and the PL is increasing then 

PL increases - foreigners buy less of our goods - exports fall

Y, real incomes increase - domestic consumers demand foreign goods - imports increase

AS imports increase, the supply of our currency increases in the FOREX.

Again, if we are importing goods, we must be dumping our currency into the FOREX to buy the foreign currency to pay the foreign producers of the imported goods we want to buy.

Simple, Yes.

Answer

(F) Based on (E) does our currency appreciate, depreciate, no change.

Understand that the valuation of our currency is calculated in relation to the demand/supply of our currency in the FOREX.

So if the supply of our currency increases in the FOREX, we can use a simple supply/demand graph to explain what is going on.

Our currency will depreciate as more and more of it is dumped into the FOREX market buying imported goods.

Answer