Cyclical unemployment results from business recessions.
A. True B. False
The correct answer and explanation is:
The correct answer is A. True.
Cyclical unemployment occurs when there is a downturn in the economy, typically during periods of recession. This type of unemployment is directly related to the overall health of the economy. When businesses face reduced demand for their products or services, they tend to cut back on production and lay off workers. This reduction in economic activity leads to job losses across various industries, creating cyclical unemployment.
The key feature of cyclical unemployment is its dependence on the economic cycle. During periods of economic growth, the demand for goods and services increases, prompting businesses to hire more workers. However, when the economy enters a recession, demand declines, leading to a slowdown in production and a reduction in the workforce. The severity and duration of cyclical unemployment can vary, depending on the length and depth of the recession.
For example, during the global financial crisis of 2007-2008, cyclical unemployment spiked as businesses across many sectors, including manufacturing, construction, and retail, were forced to lay off workers due to a sharp decline in consumer spending and investment. As the economy recovered, businesses began to rehire, and the unemployment rate gradually decreased.
Cyclical unemployment is different from other types of unemployment, such as structural or frictional unemployment. Structural unemployment occurs when there is a mismatch between the skills of workers and the demands of the job market, while frictional unemployment is temporary and occurs when workers are in between jobs or entering the workforce for the first time.
Policymakers often use monetary and fiscal measures, such as lowering interest rates or increasing government spending, to stimulate economic activity and reduce cyclical unemployment during recessions.