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

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BlackTom AI · Accepted Answer

To analyze this statement, we start by recalling what cyclical unemployment means: it is the portion of unemployment that arises from the regular ups and downs of the business cycle. During economic recessions, aggregate demand tends to fall, leading to fewer job openings and higher layoffs; conversely, in expansions, demand rises and hiring generally picks up, reducing cyclical unemployment.

Option 1: True. The claim that cyclical unemployment rises during recessions and falls during expansions aligns with the standard definition of cyclical unemployment. When the economy slows, production slows, and workers become unemployed due to insufficient demand for goods and services; when the economy accelerates, firms hire to meet higher demand, lowering cyclical unemployment. This makes the statement consistent with macroeconomic theory.

Option 2: False. This would assert the opposite pattern or deny the link between the business cycle and cyclical unemployment. In reality, cyclical unemployment is intimately connected to the cyclical fluctuations of the economy, not random or isolated to other factors. Therefore this option would be incorrect because it contradicts fundamental economic understanding of unemployment tied to recessions and expansions.

Additional nuance: While structural and frictional unemployment can independently exist and behave differently across the cycle, cyclical unemployment specifically tracks the variants caused by the overall demand conditions in the economy. The statement focuses on the core cyclical component and is consistent with how economists describe unemployment dynamics in relation to the business cycle.

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

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