The Phillips curve is Unit 5. Is it fair to use it here?

Yes, as the capstone that puts unemployment and inflation on one graph. Teach only the short-run slope and the supply-shock shift today, and flag that the long-run vertical curve and expectations get the full treatment in Unit 5. It gives students a reason to care about both measures at once.

Should I have students memorize the CPI biases?

Know them at a recognition level: substitution, new-product, and quality-change bias all push measured CPI above the true cost of living. The AP exam is more likely to test that the CPI overstates inflation than to ask you to name all three, so prioritize the calculation and the anticipated-vs-unanticipated distinction.

How do I grade the exit ticket?

Question one is 6 percent, question two is 4 percent, both right-or-wrong with the formula shown. Question three needs structural plus a yes, it is part of the natural rate. Score out of 4; a miss on question two means reteach the change-vs-level distinction before moving to real vs nominal GDP.

Lesson plans · AP Macro Unit 2 · MACRO 2.3, MACRO 2.4, MACRO 2.5

Unemployment and Inflation: Measuring the Two, and the Trade-Off

Essential question: How do we measure who counts as unemployed and how fast prices rise, and why do these two numbers usually move in opposite directions in the short run?

2 × 50-minute periods · MACRO 2.3, MACRO 2.4, MACRO 2.5 · prints clean with Cmd/Ctrl+P

Objectives

Students will be able to calculate the unemployment rate and labor force participation rate from population data.
Students will be able to classify unemployment as frictional, structural, or cyclical and explain why the natural rate excludes cyclical.
Students will be able to calculate the inflation rate from two CPI values.
Students will be able to identify the winners and losers from unanticipated inflation using the real interest rate.
Students will be able to draw a short-run Phillips curve and show how a supply shock produces stagflation by shifting it.

Materials (all free, no student accounts needed)

Warm-up (8 min)

List six people on the board: a retiree, a full-time student not job hunting, a laid-off autoworker sending out resumes, a discouraged worker who quit searching, a part-time barista who wants full-time, and a nurse switching hospitals next month. Ask students to mark who counts as unemployed.
Cold-call four students. Surface the shock that the retiree, student, and discouraged worker are not even in the labor force, and the part-time barista counts as employed.
Frame the day: the official rate misses real slack in two ways, and by the end of class you will connect it to inflation on one graph.

Direct instruction (24 min)

Define the labor force as employed plus unemployed (jobless, available, and actively searching). Write the two formulas: unemployment rate = unemployed / labor force x 100, and participation rate = labor force / working-age population x 100.
Teach the three types with the lesson's examples: frictional (the accounting graduate searching for a first job, the marketing manager moving between companies), structural (the GM Lordstown workers whose skills no longer match), cyclical (layoffs in a recession). Define the natural rate as frictional plus structural, so full employment means cyclical is zero, not a 0 percent rate.
Explain the two measurement gaps: discouraged workers drop out of the labor force (so the rate can fall as conditions worsen) and underemployed part-timers count as employed.
Introduce the CPI as the cost of a fixed basket, then the inflation rate = (new CPI - old CPI) / old CPI x 100. Do one calculation on the board and stress that a CPI level is not an inflation rate.
Cover the costs of inflation: unanticipated inflation redistributes from lenders and fixed-income earners to borrowers, using real rate is approximately nominal rate minus inflation. Add menu and shoe-leather costs for anticipated inflation.
Bridge to the Phillips curve: plot inflation on the vertical axis and unemployment on the horizontal, note the short-run downward slope, and preview that a supply shock breaks the trade-off (stagflation), which is the Unit 5 setup.

Guided practice (38 min)

Project /sandbox/phillips-curve. Point out the SRPC (downward sloping) and the vertical LRPC at the natural rate, and tell students this graph puts both of today's numbers on one picture.
Use the controls to move the current point down and to the right along the SRPC. Cold-call: 'Unemployment just rose, what happened to inflation, and which direction did we move?' Then move up and to the left and repeat, so students internalize the short-run trade-off.
Now shift the SRPC upward and to the right to simulate the 1973 oil shock. Ask the class in pairs: 'At the same unemployment rate, is inflation higher or lower now?' Confirm this is stagflation and that no demand policy fixes both at once.
Move to whiteboard rounds at desks: give each group a data card (labor force 160 million, 6.4 million unemployed; CPI 248 last year, 255 this year). Groups compute the unemployment rate and the inflation rate and hold up boards on your count.
Check one group's answers on the board using the formulas: unemployment rate = unemployed / labor force x 100, which is 6.4 / 160 = 4 percent, and inflation = (new CPI - old CPI) / old CPI x 100, which is 7 / 248 = 2.8 percent. Then ask each group to state whether an economy at 4 percent unemployment with a 5 percent natural rate sits on the upper-left or lower-right of the SRPC. Keep /calculate/unemployment-rate and /calculate/inflation-rate as reference pages, not live-input tools.

Independent practice (25 min)

Students complete a 10-question set on /practice/unemployment-inflation covering unemployment types, rate calculations, CPI inflation, and inflation winners and losers, working alone.
Each student writes one sentence naming who gains and who loses if inflation comes in at 6 percent when everyone expected 2 percent.

Exit ticket

A labor force of 200 million has 12 million unemployed. Calculate the unemployment rate.
The CPI rose from 250 to 260. Calculate the inflation rate.
Name the type of unemployment for a coal miner whose mine closed permanently, and state whether it is part of the natural rate.

Homework

Finish the remaining /practice/unemployment-inflation questions and redo any missed CPI calculation showing the formula.
Read the Stagflation and Supply Shocks section and write two sentences explaining why the 1970s broke the simple Phillips-curve trade-off.

Differentiation

For students who finish early, hand them a discouraged-worker twist: recompute the unemployment rate after 2 million people stop searching, so they see the rate fall as conditions worsen.
For strugglers, give a labeled sort card of six workers to classify by unemployment type before attempting rate calculations.
For English learners, accept the correct number and unemployment type on the exit ticket before requiring the natural-rate sentence.

Misconceptions to head off

Belief: discouraged workers count as unemployed. Correction: once they stop actively searching they leave the labor force, which is why the official rate can drop even in a worsening economy.
Belief: full employment means a 0 percent unemployment rate. Correction: full employment means only cyclical unemployment is zero; frictional and structural remain, so the natural rate is around 4 to 5 percent.
Belief: a CPI of 130 means 30 percent inflation this year. Correction: the inflation rate is the percentage change between two CPI values, not the level; 125 to 130 is 4 percent.
Belief: lenders gain from unexpected inflation. Correction: lenders locked into fixed nominal rates are repaid in cheaper dollars, so borrowers gain and lenders and savers lose.

Teacher FAQ

The Phillips curve is Unit 5. Is it fair to use it here?: Yes, as the capstone that puts unemployment and inflation on one graph. Teach only the short-run slope and the supply-shock shift today, and flag that the long-run vertical curve and expectations get the full treatment in Unit 5. It gives students a reason to care about both measures at once.
Should I have students memorize the CPI biases?: Know them at a recognition level: substitution, new-product, and quality-change bias all push measured CPI above the true cost of living. The AP exam is more likely to test that the CPI overstates inflation than to ask you to name all three, so prioritize the calculation and the anticipated-vs-unanticipated distinction.
How do I grade the exit ticket?: Question one is 6 percent, question two is 4 percent, both right-or-wrong with the formula shown. Question three needs structural plus a yes, it is part of the natural rate. Score out of 4; a miss on question two means reteach the change-vs-level distinction before moving to real vs nominal GDP.

Assign this without the grading

A free pilot semester gets you the teacher dashboard: assign the module and practice set from this plan, run lockdown exams, and see per-student progress. Students never pay either way.

Start your free pilot