Cyclical unemployment is closely associated with…
Natural rate of unemployment.
Changes in the minimum wages.
Long-term economic growth.
Year to year fluctuations of unemployment around its natural state.
The correct answer and explanation is :
The correct answer is:
Year-to-year fluctuations of unemployment around its natural state.
Explanation:
Cyclical unemployment is directly linked to the ups and downs of the business cycle. It occurs when there are economic fluctuations, such as recessions or booms, that cause short-term increases or decreases in employment levels. During economic downturns, businesses cut back on production due to reduced consumer demand, leading to layoffs and higher unemployment. Conversely, during periods of economic growth, businesses expand, creating more job opportunities and reducing unemployment.
This type of unemployment differs from the natural rate of unemployment, which consists of frictional and structural unemployment and persists even when the economy is at full capacity. The natural rate of unemployment is not affected by short-term economic fluctuations but rather by long-term factors such as technological advancements, labor market policies, and demographic changes.
Cyclical unemployment is temporary and can be managed through government interventions such as monetary and fiscal policies. For example, during a recession, central banks may lower interest rates to encourage borrowing and investment, while governments may increase spending or reduce taxes to stimulate economic activity. These measures help increase demand, leading businesses to hire more workers, thereby reducing cyclical unemployment.
It is important to note that cyclical unemployment is distinct from structural unemployment, which results from a mismatch between workers’ skills and available jobs, and frictional unemployment, which occurs as people transition between jobs.
In summary, cyclical unemployment is closely associated with short-term economic fluctuations rather than long-term economic growth or changes in policies like minimum wages. It is a key indicator of economic health and typically rises during recessions and falls during periods of economic expansion.