3.2.

4 Practice
AP Macroeconomics

Apply Knowledge of Unemployment

1.
a. The four types of unemployment are structural, frictional, cyclical, and seasonal.
Structural unemployment is caused by the structure of the economy. The structure of an
economy influences many things, including what types of goods are produced and who
receives an education. For example, fishermen might find themselves unemployed
because of new laws that limit fishing in certain areas. Frictional unemployment is
created when people move between jobs. For example, if someone quits a job to move
to a new city, he's also frictionally unemployed while he looks for work in the new city.
Cyclical unemployment is caused by fluctuations in the economy associated with the
business cycle. Real GDP is used to determine what happens to unemployment. If real
GDP is increasing, that means production is increasing, which means more labor is being
used, and unemployment decreases. On the other hand, if real GDP decreases, that
means unemployment is increasing. Seasonal unemployment is caused by fluctuations
in production due to changes in the time of year. For example, many farm laborers are
employed only during the farming season, so they're unemployed from October until
April.

b. Cyclical unemployment is associated with recessions. Recessions are the decline of

economic activity which can cause the downfall of real GDP.

2.
a. The unemployment rate becomes a better indicator of the state of the economy, because
people in the military have that as their occupation and don’t have time/need for a job on top
of their service. The unemployment rate doesn’t look at people in the military because they
aren't counted as part of the labor force.

b. The unemployment rate is a worse indicator of the state of the economy, because these
people are just tired of searching. They still want to be employed and are still able to be
employed, but they just hate having to search for a job. The unemployment rate counts
people who are actively seeking employment which include discouraged workers.

c. The unemployment rate is a worse indicator of the state of the economy, because these
workers only work sometimes, not full time, so their labor isn’t being used to its fullest
potential, though the unemployment calculations don’t take that into effect, so it makes the
state of the economy look better than it actually is.

3.
a. This would raise the unemployment rate because some people retire before 65, and mostly
because there are some people who aren’t looking for a job.

b. This would lower the unemployment rate because it would add an entire group of people to
the labor force and every single one of them would be counted as employed.
 c. This would increase the unemployment rate because currently part-time employees are
counted as full employment. PT employees were counted as employed but now they're not
so there's less people who are counted as employed/labor force.

d. This would lower the unemployment rate. The younger teens would not be counted either
way in the labor force because age limits are 16+. If they were counted in the labor force,
there would be a lower unemployment rate because they are employed.

4.
a. Unemployment will be the highest at the trough and lowest at the peak

b. If the severity of business cycles were reduced, cyclical employment would be low at high
points and high at low points. Frictional employment would mean that anyone who is
unemployed would only be for a while as they would be able to easily find another job.
Structural unemployment wouldn't be affected much as much but the economy would change
if there was a large boom and then it'd need time to adapt. Seasonal unemployment would
change with season so there'd be more opportunities in jobs that aren't seasonal so there'd
be less seasonal jobs.
5.
a. An economy is said to be at full employment when the unemployment rate is equal to the
sum of structural and frictional unemployment, or when cyclical unemployment is zero

b. The unemployment rate is positive when the economy is at full employment because there is
still structural and frictional unemployment

c. The difference between the actual RGDP and the potential RGDP is the GDP gap. When
there is unemployment, it means that the factors of production, in this case people(labor), are
not being used to its fullest potential. Full employment means that labor is being fully utilized
and the output of the economy can fall on the PFF if the other factors of production are being
utilized appropriately.

d. The GDP gap will be positive since the economy is operating at less than the potential.