Cyclical unemployment rises during economic recessions and falls during economic expansions.

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BlackTom AI · Accepted Answer

Consider the concept of cyclical unemployment within the business cycle. 
Option A: True. During economic recessions, aggregate demand tends to fall, firms cut production and layoffs occur, causing unemployment to rise. Conversely, in expansions, demand recovers, production increases, and unemployment typically declines. This pattern reflects the cyclical component of unemployment tied to the overall economy rather than frictions or structural factors. 
Option B: False. This would imply that unemployment does not respond to the ups and downs of the business cycle, which contradicts standard macroeconomic theory. In recessions, structural and frictional factors aside, cyclical unemployment is expected to rise due to reduced demand for goods and labor, and in expansions it tends to fall as demand strengthens. 
To recap, the distinguishing feature of cyclical unemployment is its sensitivity to the phase of the economic cycle, rising in downturns and falling in upswings, while other types (like frictional or structural) operate on different mechanisms and timeframes. 
Therefore, the statement accurately captures the typical cyclical behavior of unemployment across the business cycle.

Macro 3A mock exam

Cyclical unemployment rises during economic recessions and falls during economic expansions.

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