What is AP Macroeconomics?
AP Macroeconomics is a high school–level course that introduces students to the principles governing the overall economy. The course focuses on key macroeconomic indicators such as GDP, unemployment, inflation, and economic growth, alongside the use of fiscal and monetary policy to stabilise economic fluctuations. A central skill assessed in the AP Macroeconomics exam is the ability to apply theory using free response questions (FRQs) that require clear written explanations and correctly labelled diagrams.
This page provides targeted AP Macroeconomics free response questions specifically focused on employment, unemployment, and the workforce, helping students build exam-ready analytical skills.
Where did we get these AP Macroeconomics free response questions?
The AP Macroeconomics free response questions on this page are drawn from official College Board exams and closely aligned exam-style materials. Each question reflects the structure, command terms, and marking expectations used in the real AP exam. By organising questions by topic, students can practise employment-related FRQs without searching through multiple past papers.
For a complete overview of all AP Macroeconomics FRQ topics, see the main AP Macroeconomics hub page.
How to use these AP Macroeconomics free response questions
These AP Macroeconomics free response questions on employment and the workforce are best used as timed exam practice. Students should begin by carefully identifying the economic scenario, then structure their responses using precise definitions, step-by-step reasoning, and clearly labelled diagrams where required. Many questions on this page also test links between unemployment, aggregate demand, and long-run economic adjustment.
If you want additional practice with aggregate demand–driven employment questions, you may also find it useful to review AP Macroeconomics FRQs on aggregate supply and demand.
What is the workforce?
The workforce (labour force) consists of all individuals aged 16 and over who are either employed or actively seeking employment. It excludes discouraged workers, full-time students not seeking work, and retirees. Understanding changes in the size and participation rate of the workforce is essential in AP Macroeconomics, as labour supply directly affects productive capacity and long-run aggregate supply.
Workforce data frequently appears in free response questions that require calculations of unemployment rates, labour force participation rates, and interpretations of economic conditions.
What is the unemployment rate?
The unemployment rate measures the percentage of the labour force that is actively seeking work but unable to find employment. It is calculated as:
(Number of unemployed ÷ labour force) × 100
In AP Macroeconomics free response questions, unemployment data is often used to identify recessionary or inflationary gaps, evaluate policy effectiveness, or analyse long-run economic adjustment. Students are expected not only to calculate the unemployment rate, but also to explain its macroeconomic implications.
For related FRQs that link unemployment to output and growth, see AP Macroeconomics free response questions on GDP.
What is the natural rate of unemployment?
The natural rate of unemployment represents the level of unemployment that exists when the economy is operating at full employment. It includes frictional and structural unemployment, but excludes cyclical unemployment. In AP Macroeconomics free response questions, the natural rate is commonly used to analyse long-run equilibrium, Phillips curve relationships, and policy trade-offs between inflation and unemployment.
Changes in education, technology, labour market institutions, and demographics can all influence the natural rate over time.
AP Macroeconomics Free Response Questions on Employment and the Workforce
Question 1
The economy of Alpha is in short-run equilibrium with a cyclical unemployment rate of 3%, a frictional unemployment rate of 4%, and an actual unemployment rate of 8%.
(a) Calculate Alpha’s natural rate of unemployment. Show your work.
(c) Assume that policymakers take no action to close the output gap. (i) Explain how Alpha’s economy will adjust to full employment in the long run. (ii) On an aggregate supply diagram, show how Alpha’s economy will adjust to full employment in the long run, labeling the new equilibrium price level PL2.
Question 2
Assume the economy of Vanderlandia is in short-run equilibrium with a real GDP of $500 million. The full-employment level of real GDP is $550 million.
(a) Draw a correctly labeled graph of the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves, and show each of the following. (i) The current equilibrium real output and price level, labeled Y1 and PL1, respectively (ii) The full-employment output, labeled YF
(b) Assume no policy action is taken to restore full employment. (i) Explain how the economy will adjust in the long run. (ii) Following the long-run adjustment process, will the price level in Vanderlandia be greater than, less than, or equal to PL1 shown on your graph in part (a)?
(c) Assume instead that policymakers in Vanderlandia are considering changing government spending to restore full employment in the short run and that the marginal propensity to save is 0.2. (i) Calculate the minimum change and state the direction of change in government spending required to completely close the output gap in the short run. Show your work. (ii) On your graph in part (a), show the short-run effect of the change in government spending in part (c)(i), labeling the new equilibrium price level PL2.
Question 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 of unemployment is 5%.
(a) Calculate the number of people in Zeta that are unemployed. Show your work.
(b) Is the economy of Zeta currently experiencing a recessionary gap, an inflationary gap, or no output gap? Explain.
(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 who 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. (ii) The unemployment rate.
Question 4
The economy of Northland is in short-run equilibrium with an actual unemployment rate of 7% and an actual inflation rate of 1%. The natural unemployment rate in Northland is 5%.
(a) Using the relevant numerical values given, draw a correctly labeled graph of the short-run and long-run Phillips curves. Label the current short-run equilibrium point as X. Plot the relevant numerical values provided on the graph.
(b) Is the expected inflation rate greater than, less than, or equal to 1% ? Explain.
(c) Assume the marginal propensity to consume is 0.9. (i) If the government decreases income taxes by $20 billion, calculate the maximum change in aggregate demand. Show your work. (ii) If instead the government increases spending by $20 billion, calculate the maximum change in aggregate demand. Show your work.
(d) On your graph in part (a), show a possible new short-run equilibrium point labeled Z that would result if the government increases spending and there is no change in inflationary expectations.
(e) How would an increase in unemployment compensation affect aggregate demand in the short run? Explain.
(f) Assume instead the government takes none of the preceding policy actions. (Northland is still in short-run equilibrium; the actual unemployment rate is 7%, the actual inflation rate is 1%, and the natural unemployment rate is 5%.) What will happen to each of the following in the long run? (i) The short-run aggregate supply curve. Explain. (ii) The short-run Phillips curve (iii) The actual unemployment rate
Question 5
Assume a country’s economy is operating below full employment.
(a) Draw a correctly labeled graph of aggregate demand, short-run aggregate supply, and long-run aggregate supply, and show each of the following. (i) The current equilibrium real output and price level, labeled as Y1 and PL1, respectively (ii) The full-employment output, labeled as YF
(b) Identify one fiscal policy action the country’s government can take to restore full employment.
(c) Assume instead that no fiscal policy action is taken. Suppose a change in investment spending causes real GDP to increase by $ 200 billion. Calculate the minimum change in investment spending that could have caused this increase in real GDP if the marginal propensity to save is 0.25. Show your work.
(d) Assume the output gap was initially $ 800 billion. On your graph in part (a), show the short-run effect of the change in investment spending identified in part (c), labeling the new equilibrium real output as Y2 and the new equilibrium price level as PL2.
(e) Given your answer to part (d), is the actual rate of unemployment greater than, less than, or equal to the natural rate of unemployment? Explain.
(f) Assume that private savings now increase. Draw a correctly labeled graph of the loanable funds market and show the effect of the increase in private savings on the real interest rate.
(g) Based solely on the change in the real interest rate shown in part (f), what will happen to each of the following? (i) Real GDP in the short run. Explain. (ii) Long-run aggregate supply. Explain.
Question 6
Assume a country’s economy is currently operating below full employment.
(a) Identify a fiscal policy action the country’s government could implement to restore full employment.
(b) Draw a correctly labeled graph of the loanable funds market, and show the effect of the fiscal policy action identified in part (a) on the equilibrium real interest rate.
(c) Based solely on the real interest rate change shown in part (b), what will happen to each of the following? (i) Net exports. Explain. (ii) The stock of physical capital. Explain.
Question 7
Flowerland is an open economy with a flexible exchange rate regime. The natural rate of unemployment is 5%, the frictional rate of unemployment is 4%, and the actual rate of unemployment is 7%.
(a) What is the numerical value of the cyclical rate of unemployment in Flowerland?
(b) Assume the foreign demand for lavender oil produced in Flowerland increases. What will happen to each of the following in Flowerland in the short run? (i) Aggregate demand. Explain. (ii) Cyclical unemployment. The table shows the market basket quantities and prices of lavender oil and roses, the only two goods produced in Flowerland.
(c) Assume 2019 is the base year. Based on the data in the table, calculate the price index for year 2020 in Flowerland. Show your work.
(d) If nominal income in Flowerland increased by 20% from 2019 to 2020, will the standard of living of the average citizen of Flowerland increase, decrease, or stay the same from 2019 to 2020 ? Explain.
Question 8
Canada is an open economy that is currently in a recessionary output gap.
(a) Draw a correctly labeled graph of the long-run aggregate supply, short-run aggregate supply, and aggregate demand curves, and show each of the following. (i) The current equilibrium real output and price level, labeled as Y1 and PL1, respectively (ii) Full-employment output, labeled Yf
(b) The central bank and the government do not take any policy actions to close the output gap. (i) Explain how the economy will adjust to full employment in the long run. (ii) On your graph in part (a), show how the economy adjusts to full employment in the long run.
(c) Suppose the Canadian government is unwilling to wait for the long-run adjustment process. The marginal propensity to consume is 0.8. The equilibrium real output is $500 billion and the full-employment output is $540 billion. (i) Calculate the minimum change and indicate the direction of change in government spending required to shift the aggregate demand curve by the amount of the output gap. (ii) Calculate the minimum change and indicate the direction of change in taxes required to shift the aggregate demand curve by the amount of the output gap.
(d) Assume instead that the Canadian central bank takes actions to restore the economy to full-employment output by influencing investment spending. Draw a correctly labeled graph of the money market, and show the effect of the actions taken by the central bank on the equilibrium interest rate.
(e) Canada and Mexico are trading partners. Draw a correctly labeled graph of the foreign exchange market of the Canadian dollar, and show the effect of the change in the interest rate in part (d) on the value of the Canadian dollar with respect to the Mexican peso
Question 9
Countries face trade-offs between producing consumer goods and producing capital goods. (a) Country X takes one hour to produce a unit of consumer goods and two hours to produce a unit of capital goods. Country Y takes two hours to produce a unit of consumer goods and four hours to produce a unit of capital goods. Which country has a comparative advantage in the production of consumer goods? Explain. The following table shows labor-market data for Country X.
(b) Calculate the unemployment rate in Country X. Show your work.
(c) Calculate the labor force participation rate in Country X. Show your work.
(d) Draw a correctly labeled graph of the production possibilities curve for Country X, with consumer goods on the horizontal axis and capital goods on the vertical axis. Indicate a point on your graph, labeled Z, that reflects the current level of unemployment.
Question 10
Assume that the economy of Country X has an actual unemployment rate of 7%, a natural rate of unemployment of 5%, and an inflation rate of 3%.
(a) Using the numerical values given above, draw a correctly labeled graph 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.
(b) Assume that the government of Country X takes no policy action to reduce unemployment. In the long run, will each of the following shift to the right, shift to the left, or remain the same? (i) Short-run aggregate supply curve. Explain. (ii) Long-run Phillips curve
(c) Identify a fiscal policy action that could be used to reduce the unemployment rate in the short run.
(d) Draw a correctly labeled graph of aggregate demand and short-run aggregate supply, and show the impact on the equilibrium price level and real gross domestic product (GDP) of the fiscal policy action identified in part (c).
(e) Based on the change in real GDP identified in part (d), will the supply of Country X’s currency in the foreign exchange market increase, decrease, or remain the same? Explain.
(f) Based on your answer to part (e) and assuming a flexible exchange rate system, will Country X’s currency appreciate, depreciate, or remain the same in the foreign exchange market?
Question 11
Assume that the United States economy is currently in a short-run equilibrium with the actual unemployment rate above the natural rate of unemployment.
(a) Draw a single correctly labeled graph with both the long-run Phillips curve and short-run Phillips curve. Label the current short-run equilibrium point P.
(b) Assuming no policy actions are taken, will the short-run Phillips curve shift to the right (upward), shift to the left (downward), or remain the same in the long run? Explain.
(c) If the Federal Reserve Bank wants to lower unemployment, what expansionary open-market operation should it use?
(d) How will the open-market operation you identified in part (c) affect each of the following? (i) Federal funds rate. Explain. (ii) Real interest rate in the short run.
(e) Given your answer in part (d)(ii), what is the effect on real gross domestic product (GDP) in the short run? Explain.
(f) Japan and the United States are major trading partners. Indicate how the change in real GDP you identified in part (e) will affect the demand for the Japanese yen in the foreign exchange market.
(g) Draw a correctly labeled graph of the foreign exchange market for the Japanese yen, showing the effect of the change in demand identified in part (f) on the value of the Japanese yen relative to the United States dollar.
Answer Key
Question 1
Question 2
Question 3
Question 4
Question 5
Question 6
Question 7
Question 8
Question 9
Question 10
Question 11
Mark is an A-Level Economics tutor who has been teaching for 6 years. He holds a masters degree with distinction from the London School of Economics and an undergraduate degree from the University of Edinburgh.