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

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BlackTom AI · Accepted Answer

Consider what cyclical unemployment means in the context of the business cycle. It arises from insufficient demand for goods and services, leading firms to lay off workers during downturns and to hire back workers as aggregate demand improves.

Option: True. During economic recessions, overall demand falls, and cyclical unemployment tends to rise as employers reduce hiring or lay off workers. Conversely, during economic expansions, demand strengthens, prompting firms to hire more and reduce cyclical unemployment, which falls.

Option: False. If cyclical unemployment were to behave in the opposite way—rising in expansions or staying constant regardless of the cycle—this would contradict the fundamental relationship between demand fluctuations and employment in the macroeconomic framework. The statement as given aligns with standard theories of the cyclicality of unemployment.

In summary, the concept of cyclical unemployment directly ties the health of the economy, via the business cycle, to changes in unemployment levels, increasing in recessions and decreasing in expansions. Therefore, the statement accurately describes cyclical unemployment dynamics.

Macro 3B mock exam

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

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