Monday, April 21, 2014

AP Macroeconomics test hint: You must get "Employment" and "Unemployment" right when asked how it changes as the result of a Real GDP change.

I know this is VERY EASY but lots of students get it wrong, mostly because of inattention and/or nerves while taking the test.  Don't miss this EASY point!

My cyber-friend over at The New Arthurian has this graph showing the relationship between POSITIVE relationship between Real GDP and Employment (the relationship is NEGATIVE between Real GDP and UN-employment)

All the lines show the percentage change in that variable year-over-year.  Real GDP is in BLACK and the other measures of EMPLOYMENT are in the the various other colors.

The New Arthurian
Below is the same graph (but starting in 1950) but with only with the change in Real GDP and "Total Non-Farm Employment" to simplify the visual.

Notice the trend?  Real GDP(BLACK line) "pulls up"  or "pushes down" employment.

If you have a question on the AP Macroeconomics test that asks how employment is affected as a result of and INCREASE in Aggregate Demand (AD) OR an increase in Aggregate Supply (SRAS or LRAS) you would answer like this:

"As Real GDP (output) increases business need more workers to produce the additional goods and/or services.  More labor is needed and the EMPLOYMENT Rate will INCREASE.

If the question asks how employment is affected as a result of a DECREASE in Aggregate Demand (AD) or a DECREASE in Aggregate Supply (SRAS or LRAS) you would answer like this:

"As Real RDP (output) decreases businesses will need fewer workers because they are producing fewer goods and/or services. Less labor is needed and the EMPLOYMENT rate will DECREASE".


The graph below illustrated the NEGATIVE or INVERSE relationship between Real GDP and the UN-employment rate---the number of people without jobs but are actively seeking one.

As the Real GDP Increases the UNEMPLOYMENT rate DECREASES.

If you have a question on the AP Macroeconomics test that asks how unemployment is affected as a result of an INCREASE in Aggregate Demand (AD) OR an increase in Aggregate Supply (SRAS or LRAS) you would answer like this:

"As Real GDP (output) increases business need more workers to produce the additional goods and/or services.  More labor is needed and the UNEMPLOYMENT Rate will DECREASE.

If the question asks how employment is affected as a result of a DECREASE in Aggregate Demand (AD) or a DECREASE in Aggregate Supply (SRAS or LRAS) you would answer like this:

"As Real RDP (output) decreases businesses will need fewer workers because they are producing fewer goods and/or services. Less labor is needed and the UNEMPLOYMENT rate will INCREASE".
Read those answers in BOLD again so you fully understand how to answer a question when asked how EMPLOYMENT or UNEMPLOYMENT is affected by a change in Real GDP.  While they both indicate the same thing (an improving or declining economy) , the directional change in important for you to get right on the test.

A small thing, I know, but it WILL cost you a point if you don't get the terminology right.
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