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

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BlackTom AI · Accepted Answer

Prompt asks us to evaluate a statement about the behavior of unemployment over business cycle phases.
Option 1: True. The core idea here is that cyclical unemployment is tied to the overall economy’s expansion and contraction. During recessions, aggregate demand falls, producing a shortfall in jobs as firms cut back or delay hiring, which increases cyclical unemployment. Conversely, during economic expansions, demand strengthens, firms hire to meet higher output, and cyclical unemployment typically falls. This aligns with standard macroeconomic theory that distinguishes cyclical unemployment from frictional or structural unemployment.
Option 2: False. This would imply that unemployment does not vary with the business cycle, suggesting that recessions do not raise unemployment or that expansions do not reduce it. However, empirical and theoretical work in macroeconomics shows that unemployment tends to rise in downturns and fall in upswings due to changes in overall economic activity and labor demand. The statement is contradicted by the conventional understanding of cyclical unemployment.
In summary, recognizing the business cycle’s impact on labor demand explains why cyclical unemployment increases in recessions and decreases in expansions. The true characterization follows from the concept of unemployment being influenced by fluctuations in aggregate demand and economic activity, not remaining constant across the cycle.

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

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