DSE Economics | Inflation and Unemployment Teaching Guide (for tutors)

DSE Economics | Inflation and Unemployment Teaching Guide (for tutors) | From the CPI to the Phillips curve

2026-11-03

Tutor lesson-prep guides · Secondary Economics

Give students “15 % inflation, 10 % pay rise” and most answer “a 10 % gain”, ignoring purchasing power. This lesson pins down three numbers, the CPI, the real wage and the unemployment rate, before discussing the short-run and long-run trade-off.

Objectives — Students can: (1) compute 15 % inflation from a CPI of 100 rising to 115; (2) compute a real wage of 19,130, a fall of 4.3 %, from a nominal rise of 20,000 to 22,000 with 15 % inflation; (3) compute a 5.0 % unemployment rate from 180,000 unemployed in a labour force of 3,600,000 and classify frictional, structural and cyclical cases; (4) compute real growth of about 1.9 % from 5 % nominal growth and 3 % inflation, and explain the short-run Phillips trade-off against the long-run vertical curve.

01 Prerequisites (3-minute check)

If any of these fails, fix it before the lesson starts.

Skill	Quick check	Pass mark
Percentage change	What is (115 – 100) / 100?	15 %
Ratios	What percentage is 180,000 out of 3,600,000?	5 %
Real versus nominal	Nominal growth 10 % with 15 % inflation: does purchasing power rise or fall?	It falls
Definition of unemployment	Does a full-time student count in the labour force?	No

02 Lesson flow (60 minutes)

Time	Stage	Tutor does	Student does
0-8 min	The pay rise trap	Ask whether a 10 % rise with 15 % inflation improves life	Write a judgement and a reason
8-20 min	CPI and inflation	Take a basket from 100 to 115 and compute the rate	Compute it and write the formula
20-32 min	Real wages	Divide 22,000 by 1.15 and explain why subtraction is wrong	Compare both methods
32-42 min	Unemployment rate and types	180,000 over 3,600,000, then classify three cases	Label each case with a reason
42-52 min	Short and long run	Draw the Phillips curve and ask why the long run is vertical	Draw it and mark the natural rate
52-60 min	Exit check	Hand out four questions	Answer independently, redo errors at once

03 Teaching script (read it out)

Scene 1: The CPI is a weighted average; the inflation rate is its rate of change

With the CPI moving from 100 to 115, inflation is (115 – 100) / 100 x 100 % = 15 %. The key phrase is “the same basket”: if housing is suddenly added, a higher index does not mean every price rose. Distinguish the CPI, which covers consumer goods, from the GDP deflator, which covers all domestic output.

Ask each student for their own basket and why the weights matter.

Scene 2: Real values are divided, not subtracted

Nominal pay rises from 20,000 to 22,000, a 10 % gain, but prices rise 15 %. The real wage is 22,000 / 1.15 = 19,130, a fall of 4.3 % from 20,000. Simply subtracting 15 % gives 18,700, which is too high. The formula divides by the price index ratio, and saying this clearly stops the error for good.

Have students verify with “how many breakfasts can I buy” before moving on.

Scene 3: Unemployment counts only the labour force; the trade-off is short run only

The rate is 180,000 / 3,600,000 x 100 % = 5.0 %, and the participation rate is 3,600,000 / 6,000,000 = 60 %. Frictional unemployment is between jobs, structural is a skills mismatch, cyclical is deficient demand; only the cyclical part trades off against short-run inflation. The natural rate is about 4 %, so the long-run Phillips curve is vertical and expansionary policy only raises prices.

Have students classify three cases and name the policy that fits each.

04 Question types and worked steps

Type	Example	Steps	Answer
Inflation rate	CPI 100 to 115	1) (new – old) / old 2) multiply by 100 % 3) keep the percent sign	15 %
Real wage	20,000 to 22,000 at 15 % inflation	1) new wage / (1 + inflation) 2) compare with the old wage 3) state purchasing power	19,130, down 4.3 %
Unemployment rate	180,000 unemployed, 3,600,000 in the labour force	1) numerator is the unemployed only 2) denominator is the labour force 3) multiply by 100 %	5.0 %
Real GDP growth	5 % nominal, 3 % inflation	1) (1 + nominal) / (1 + inflation) – 1 2) or the approximation nominal minus inflation	about 1.9 %

Sanity check (teach this): Cross check: real wage 19,130 times 1.15 is 22,000, back to the nominal 22,000, so the arithmetic is consistent. Unemployment at 5.0 % sits near the natural rate of 4 %, close to full employment. Real growth 1.9 % is below nominal 5 %, as it must be; a real figure above the nominal one means the denominator is wrong.

05 Independent practice (3 questions)

Question	Answer	What to watch
CPI from 120 to 132: inflation rate?	10 %	Dividing by the old index
Nominal pay up 6 %, inflation 8 %: real pay?	About 1.9 % lower	Using 1.06 / 1.08
90,000 unemployed in a labour force of 1,500,000: rate?	6.0 %	Counting non-participants in the denominator

06 Common mistakes and what to say

Mistake	Student writes	Say this
Subtracting inflation from the pay rise	“Up 10 % with 15 % inflation means down 5 %”	“Divide, do not subtract: 22,000 / 1.15 = 19,130, a fall of 4.3 %. Subtraction is only an approximation and gets worse as inflation rises.”
Using total population in the denominator	“180,000 / 6,000,000 = 3 %”	“The denominator is the labour force, not the population. The wrong denominator understates unemployment.”
Assuming all unemployment yields to stimulus	“More government spending can end unemployment”	“Structural and frictional unemployment ignore aggregate demand; in the long run stimulus only raises prices.”
Reading the CPI as every price	“The CPI rose 15 %, so everything is 15 % dearer”	“The CPI is a weighted average; individual items move differently, so look at the weights and component indices.”

07 Homework (paper, section and question numbers)

Economics chapter index — Review national income, then questions 1 and 3
National income and GDP — Question 4 contrasts nominal and real growth
Demand and supply — Question 6 uses demand-pull inflation

08 Exit check (last 5 minutes)

Question	Answer	Decision
Inflation from CPI 100 to 115	15 %	Wrong: divided by the new index
Real value of 22,000 at 15 % inflation	19,130	Wrong: subtracted 15 %
Unemployment rate with 180,000 and 3,600,000	5.0 %	Wrong: population in the denominator
Shape of the long-run Phillips curve	Vertical at the natural rate	Wrong: said downward sloping

09 Tutor FAQ

CPI or GDP deflator?

Consumer purchasing power uses the CPI; the overall price level of output uses the GDP deflator, which is what most “general price level” questions mean.

Is inflation always bad?

Mild inflation near 2 % can support spending and investment; only high or hyperinflation destroys money’s functions. Marks come from the size and the cause.

Does a lower unemployment rate mean everyone has work?

No. Discouraged workers leave the labour force and flatter the rate, so always read the participation rate too.

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A TutorZone lesson-prep guide. Written by the TutorZone team; questions and lesson flow are original and are not taken from any school or publisher material.