Extract the output-gap-to-unemployment relationship from the model
Three steps, the way the exam actually works: work through the lab, write down your own measurements, then answer a 6-point free response. What you recorded goes to the grader with your writing, so a conclusion that does not follow from your own numbers will cost you the point — exactly as it would with a real reader.
Predict before you look
- Full employment does not mean zero unemployment. Which components of unemployment remain when the output gap is zero?
- If output rises above potential, does unemployment go up or down?
Nothing to submit here — these are to think through, so the prediction below is an informed one rather than a guess.
Commit to an answer now. It is not graded and being wrong costs nothing — the point is to have something specific to reconcile against once you have the data.
Answer every prediction to unlock the lab. A sentence is enough.
Run the investigation
Predictions first
The procedure and the simulation unlock once you have committed above. Observing before predicting is how a wrong intuition survives a lab intact.
Record what you measured
These are your numbers, not ours. The grader sees them, so your conclusions have to follow from what you actually recorded.
| Real GDP at the starting equilibrium | |
|---|---|
| Unemployment at the starting equilibrium | % |
| Real GDP after one expansionary action | |
| Unemployment after one expansionary action | % |
| Real GDP after two expansionary actions | |
| Unemployment after two expansionary actions | % |
| Real GDP after one contractionary action | |
| Unemployment after one contractionary action | % |
Answer the free response
Full-employment output in this model is Y = 100. (a) For each of your four observations, calculate the output gap as a percentage of potential output and state whether it is recessionary, inflationary, or zero. (b) Plot or tabulate unemployment against the output gap and determine the numerical relationship between them. Show how you obtained it. (c) Your starting observation should show unemployment above zero even though the output gap was zero. Explain why full employment does not mean zero unemployment, naming the two components of unemployment that remain. (d) In your two-action observation, unemployment fell below its starting value. Explain why an economy cannot sustain that position indefinitely, and identify which curve moves to end it and in which direction.
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