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How does cyclical unemployment behave in the AD/AS diagram as the equilibrium moves closer to, or farther from, potential GDP?
ACyclical unemployment is low near potential GDP and high substantially below it
BCyclical unemployment is unrelated to how close output is to potential GDP
CCyclical unemployment is high near potential GDP and low far below it
DCyclical unemployment only changes when the price level changes
Answer & Solution
Correct answer: A. Cyclical unemployment is low near potential GDP and high substantially below it
1. Cyclical unemployment tracks how far the economy's output sits from its full-employment potential.
2. When equilibrium output is close to potential GDP, relatively few workers are cyclically unemployed.
3. When equilibrium output is substantially below potential GDP, cyclical unemployment is high.
4. Option C reverses this relationship, and option D misattributes the driver to the price level instead of output.
_Source: OpenStax Principles of Macroeconomics for AP Courses (CC BY 4.0), Ch 10 "The Aggregate Demand/Aggregate Supply Model", section 10.5 | How the AD/AS Model Incorporates Growth, Unemployment, and Inflation_
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