Cyclical unemployment is:?

Question

Cyclical unemployment is:

A. the unemployment that results when people retire or leave the labor force.

B. the additional unemployment not captured in official statistics resulting from discouraged workers and the involuntary part-time workers.

C. the extra unemployment that occurs during periods of recession.

D. short-term unemployment that is associated with the process of matching workers with jobs.

E. long-term and chronic unemployment that exists even when the economy is producing at a normal rate.

Answer 1

C. the extra unemployment that occurs during periods of recession.

Answer 2

A factor of overall unemployment that relates to the cyclical trends in growth and production that occur within the business cycle. When business cycles are at their peak, cyclical unemployment will be low because total economic output is being maximized. When economic output falls, as measured by the gross domestic product (GDP), the business cycle is low and cyclical unemployment will rise.  

Economists describe cyclical unemployment as the result of businesses not having enough demand for labor to employ all those who are looking for work. The lack of employer demand comes from a lack of spending and consumption in the overall economy.  



Cyclical unemployment is one of five classes of unemployment as recognized by economists. Other types include structural, frictional, classical and Marxian. In most cases, several types of unemployment exist at the same time. With the exception of cyclical unemployment, the other classes can be occurring even at the peak ranges of business cycles, when the economy is said to be at or near “full employment”.

This type of unemployment exists due to inadequate effective aggregate demand. It gets its name because it varies with the business cycle, though it can also be persistent, as during the Great Depression of the 1930s. Gross domestic product is not as high as potential output because of demand failure, due to (say) pessimistic business expectations which discourages private fixed investment spending. Low government spending or high taxes, underconsumption, or low (or negative) net exports may also have this result.

Some consider this type of unemployment one type of frictional unemployment in which factors causing the friction are partially caused by some cyclical variables. For example, a surprise decrease in the money supply may shock participants in society. Then, we may see recession and cyclical unemployment until expectations adjust to the new conditions.

In this case, the number of unemployed workers exceeds the number of job vacancies, so that if even all open jobs were filled, some workers would remain unemployed. This kind of unemployment coincides with unused industrial capacity (unemployed capital goods). Keynesian economists see it as possibly being solved by government deficit spending or by expansionary monetary policy, which aims to increase non-governmental spending by lowering interest rates.

Classical economics rejects the conception of cyclical unemployment, seeing the attainment of full employment of resources and potential output as the normal state of affairs. However, it accepts the theory to some extent as full employment can never be reached.