Question

The tables below describe the employment and price level situation for the country of Gatoria over the past four years. Fill out the tables and use them to answer the following questions about how policymakers and politicians in the country might respond such a situation.

Year	# Unemployed (in millions)	# Employed (in millions)	Unemployment Rate
2015	16	210
2016	22	205
2017	20	195
2018	18	200

What has been happening to the unemployment rate since 2015? Use the AS-AD model to illustrate what has happened to the economy since 2015. Assume the economy was at full employment in 2015. From this initial condition, drawa new aggregate demand curve to show how the economy has changed. Describehow the new equilibrium is different from the old one both in terms of price leveland outputlevel.

Answer 1

Ans 1: Labor force = Employed + Unemployed

Unemployment rate = (Unemployed / Labor force)*100

Year	Unemployed (in millions)	Employed(in millions)	Labor Force (in millions)	Unemployment Rate (in %)
2015	16	210	226	7.08
2016	22	205	227	9.69
2017	20	195	215	9.30
2018	18	200	218	8.26

Ans 2: The unemployment rate has been rising and falling from 2105, as we can see from the table. We can see it rises in 2016 and then falls by a marginal rate in 2017 and then drops further in 2018. But as compared to 2015, the unemployment rate is still higher in 2018 as compared to 2015.

Ans 3: AD/AS curve is given below: