Wave of New Graduates
The question
Assume the economy of Corveth is operating at its natural rate of unemployment with stable, fully anticipated inflation. A demographic bulge means that for the next decade an unusually large share of Corveth's labor force consists of first-time job seekers, who typically spend many months sampling positions before settling into steady work. Firms' per-unit production costs and the inflation rate that workers and firms expect are both unchanged. Show the long-run effect of this change in the Phillips curve model. Show the effect on the Phillips Curve graph.
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Wave of New Graduates: the worked answer
On the Phillips Curve graph, LRPC shifts right.
Why LRPC shifts right
First-time job seekers spend longer between jobs than experienced workers do, so when they make up a much larger share of the labor force the economy's average time spent searching rises. That is an increase in frictional unemployment, which is a component of the natural rate, so the natural rate of unemployment is higher and the vertical long-run Phillips curve moves right. Per-unit costs and expected inflation are unchanged, so the short-run curve travels with the higher natural rate rather than shifting relative to it.
What happens to the equilibrium
The economy now settles at a permanently higher unemployment rate while sustaining the same inflation rate as before.
The mistake students make on this one
Many students draw nothing at all, since nobody was laid off and no cost changed, and others nudge the SRPC up because 'more unemployment' feels like a short-run event. Who makes up the labor force is a determinant of frictional unemployment, and frictional unemployment sits inside the natural rate, so the vertical curve moves right.
On exam day
A stem about WHO is in the labor force, rather than about costs or expectations, is always a natural-rate question. More inexperienced searchers means a higher natural rate: move the LRPC right and leave the inflation side of the model alone.
How this is graded
The checker reads every curve's position before and after your answer. You are marked correct only when LRPC shifts right and every other curve on the Phillips Curve graph stays where it started — the same standard an AP reader applies to a drawn graph: the right shift, and nothing extra. There is no AI involved; the rubric is the geometry.
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