AP Macroeconomics

Advanced Placement Macroeconomics studying national and global economic systems.

Basic Concepts

Unemployment and Inflation

Two Key Economic Indicators

Economists watch unemployment and inflation closely to understand the health of an economy.

Unemployment

  • Unemployment Rate: The percentage of people in the labor force who are actively seeking work but are not employed.
  • Types of Unemployment:
    • Frictional: Between jobs or just entering the workforce.
    • Structural: Mismatch between skills and jobs available.
    • Cyclical: Due to downturns in the business cycle.

Inflation

  • Inflation Rate: Measures how much prices for goods and services rise over time.
  • High inflation can erode purchasing power, while deflation (falling prices) can slow economic activity.

The Relationship Between the Two

Often, low unemployment comes with higher inflation, and vice versa—a tradeoff known as the Phillips Curve.

Why These Matter

Both affect people's daily lives: jobs determine income, and inflation affects what that income can buy.

Examples

  • If more people lose jobs during a recession, the unemployment rate rises.

  • When the price of groceries goes up each year, that's inflation in action.

In a Nutshell

Unemployment and inflation are vital indicators that show how well an economy is performing.