AQA A-level Economics: Employment and unemployment (7136) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover the Employment and unemployment sub-section of AQA A-level Economics (7136), from the AQA AS and A-level Economics specification, first teaching from September 2015 (website numbering 3.2.3.2). All countries and figures are invented. Read the study guide first, or use the revision notes. Course pages: AQA A-level Economics hub and checklist.

Questions

1. Distinguish between voluntary and involuntary unemployment. [3]

2. Country D (illustrative) has a population aged 16 and over of 20.0 million, of whom 12.0 million are employed and 0.8 million are unemployed on the Labour Force Survey measure. The claimant count is 0.6 million.

(a) Calculate the unemployment rate. [2] (b) Calculate the activity rate. [2] (c) Explain one reason why the claimant count is below the survey figure. [2]

3. Identify the type of unemployment in each case (seasonal, frictional, structural or cyclical): (i) a graduate searches for six weeks between jobs; (ii) a coastal hotel cuts staff every winter; (iii) hand weavers are made redundant when machines replace them and no local jobs suit their skills; (iv) factories in every region lay off workers after export orders fall. [4]

4. A region loses 70,000 jobs when an industry declines. Another region has 50,000 vacancies, and 35,000 of the displaced workers have suitable skills and can move. Calculate the number still unemployed and the number of unfilled vacancies, explain why this is structural rather than cyclical unemployment, and suggest one suitable policy. [4]

5. In a local labour market, labour demand is Ld = 1,000 - 40W and labour supply is Ls = 400 + 20W, where W is the hourly wage in pounds and labour is in thousands of workers.

(a) Calculate the equilibrium wage and employment. [2] (b) A minimum wage of 12 pounds is introduced. Calculate the unemployment. [2] (c) Name the type of unemployment created and explain why it arises. [2] (d) Money wages rise 5.5% while prices rise 2.5%. Calculate the real wage change. [2]

6. Explain, using an AD/AS diagram described in words, how a fall in aggregate demand can cause cyclical unemployment. [6]

7. Country E (illustrative) has a labour force of 40.0 million, a natural rate of unemployment of 5% and output per worker of 60,000 pounds (assume constant). Real GDP is 3% below potential. Calculate potential output, actual output, employment, the unemployment rate and the number of cyclically unemployed. [6]

8. Country A (illustrative) has a labour force of 25.0 million and output per worker of 80,000 pounds (assume constant). Its natural rate rises from 3.0% to 4.5%.

(a) Calculate the change in potential output. [3] (b) State the effect on LRAS and suggest one supply-side cause of the rise. [2]

9. Explain two consequences of unemployment for individuals and two for the performance of the economy. [8]

10. Evaluate the usefulness of the claimant count compared with the Labour Force Survey measure when judging the state of the labour market. [8]

11. Evaluate the view that expansionary demand-side policy is the most effective way of reducing unemployment. [12]

Answers

1. Voluntary: people choose not to take jobs available at the going wage [1]. Involuntary: people are willing and able to work at the going wage but cannot find a job [1]. The distinction is whether the person would accept a job at the current wage [1]. [3] Examiner insight: A “distinguish” answer gains credit when it makes the contrast explicit; two separate definitions with no point of difference leave the comparison unfinished.

2. (a) Labour force = 12.0 + 0.8 = 12.8 million [1]. Rate = 0.8 / 12.8 = 6.25% [1]. [2] (b) Activity rate = 12.8 / 20.0 [1] = 64% [1]. [2] (c) Some jobless people are ineligible for benefit (for example, because of a partner’s income) [1], so they count in the survey but not as claimants; the gap is 0.2 million [1]. [2] Examiner insight: Show the labour force line; dividing by the population gives 4.0%, and the working then makes the wrong denominator visible.

3. (i) Frictional [1]. (ii) Seasonal [1]. (iii) Structural [1]. (iv) Cyclical [1]. [4] Examiner insight: Match each label to a distinguishing feature in the case (search time, yearly pattern, skills mismatch, economy-wide demand); a guess without it is weaker support.

4. Matched = 35,000, so unemployed = 70,000 - 35,000 = 35,000 [1]. Unfilled vacancies = 50,000 - 35,000 = 15,000 [1]. Vacancies and unemployment coexist, so the problem is a mismatch of skills or location, not a shortage of demand [1]. Retraining or help with relocation [1]. [4] Examiner insight: A policy gains credit when it targets the diagnosed cause; recommending a demand stimulus here contradicts the answer’s own explanation.

5. (a) 1,000 - 40W = 400 + 20W, so 60W = 600 [1]. W = 10 pounds, L = 600 thousand [1]. [2] (b) At W = 12: Ld = 520 and Ls = 640 [1]. Unemployment = 120 thousand [1]. [2] (c) Real wage unemployment [1], because the wage is held above the market-clearing level so supply exceeds demand [1]. [2] (d) 1.055 / 1.025 = 1.0293 [1]. Real wage rises by 2.9% [1]. [2] Examiner insight: In (d) subtracting inflation (3.0%) is a common shortcut that gives a different figure; writing the ratio calculation lets your working be followed.

6. A fall in AD, for example from lower consumer confidence or weaker export orders [1], shifts the AD curve to the left [1]. The economy moves down the short-run AS curve to a lower price level and lower real GDP [1]. Output is now below the vertical LRAS position, which is a negative output gap [1]. Labour demand is derived from demand for output, so firms need fewer workers [1]. Unemployment rises above the natural rate, and this excess is cyclical (demand-deficient) unemployment [1]. [6] Examiner insight: Each step of the chain needs a link word such as “so” or “because”; a labelled diagram without the written chain tends to leave the explanation incomplete.

7. Potential employment = 40.0 x 0.95 = 38.0 million [1]. Potential output = 38.0m x 60,000 = 2,280 billion pounds [1]. Actual output = 0.97 x 2,280 = 2,211.6 billion [1]. Employment = 2,211.6bn / 60,000 = 36.86 million [1]. Unemployed = 40.0 - 36.86 = 3.14 million, a rate of 7.85% [1]. Cyclical = 38.0 - 36.86 = 1.14 million (2.85 percentage points above the natural rate) [1]. [6] Examiner insight: Show potential employment before output; it lets each later figure be traced to its source.

8. (a) Before: 25.0 x 0.97 = 24.25m workers x 80,000 = 1,940 billion [1]. After: 25.0 x 0.955 = 23.875m x 80,000 = 1,910 billion [1]. Change = -30 billion pounds (-1.55%) [1]. [3] (b) LRAS shifts left because potential output falls [1]. Cause: a worsening skills mismatch, falling mobility or more generous benefit conditions [1]. [2] Examiner insight: Mention the direction and the reason for the shift together; stating “left” alone repeats the calculation without explaining it.

9. Individuals: loss of income, so living standards and spending fall [1][1]. Skill loss and poorer health over time, which reduce employability [1][1]. Economy: lost output because resources are unused [1], so the economy operates below potential [1]. Higher benefit spending and lower tax receipts widen the budget deficit [1][1]. [8] Examiner insight: Each consequence is worth more when its effect is stated; a bare list of effects usually fails to show the second step.

10. The claimant count is based on benefit records [1]; it is quick, cheap and available for small areas [1]. It misses jobless people who are ineligible or do not claim, and rule changes alter it [1]. The LFS uses the ILO test, so it is consistent over time and across countries [1]. It is a sample, so it has sampling error and is slower to detail local areas [1]. Which is more useful depends on the purpose: the survey for international comparison, the claimant count for local monitoring [1][1]. Using both, and noting hidden unemployment, gives the fullest picture [1]. [8] Examiner insight: A judgement that names its purpose (international comparison or local monitoring) carries more weight than the remark that both measures have strengths.

11. Case for demand-side policy: when unemployment is cyclical, a negative output gap means spare capacity [1]. Higher AD raises output and, through derived demand, employment [1], and the multiplier amplifies the effect [1]. Limits: structural unemployment involves vacancies that the jobless cannot fill, so extra demand mainly raises prices [1]. Frictional unemployment responds to better information, not demand [1]. Real wage unemployment needs lower real wages or higher productivity [1]. Demand stimulus cannot permanently push unemployment below the natural rate without inflation [1]. Supply-side measures that cut the natural rate shift LRAS right [1], but they act slowly [1]. Demand policy also has time lags and may raise public debt [1]. Judgement: it is most effective when a large negative gap exists [1]. A reasoned conclusion states what would change the view [1]. [12] Examiner insight: A strong answer diagnoses the cause first and then rates the policy against it; listing policies without diagnosis reads as description.

Where marks are usually lost

• Dividing unemployed by the population instead of the labour force.
• Giving the correct label for a type of unemployment without a reason from the case.
• Recommending demand stimulus for structural or frictional unemployment.
• Subtracting inflation from money wage growth instead of using the ratio.
• Describing a fall in AD without saying why employment falls.
• Treating the natural rate as zero.
• Listing consequences without explaining the second-stage effect.
• Ending an evaluation with a summary and no judgement.

Next steps

• Review the revision notes and the study guide.
• Visit the course hub and the checklist.
• Try all the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

AQA AS and A-level Economics specification (7135 and 7136), first teaching from September 2015, version 1.3, published by AQA.