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Chapter 8: Problem 19

When would you expect cyclical unemployment to be rising? Falling?

Short Answer

Expert verified
We expect cyclical unemployment to be rising during economic contraction and trough phases, as firms require fewer workers due to declined demand for goods and services. Conversely, cyclical unemployment is expected to be falling during expansion and peak phases, as firms hire more workers to meet the increasing demand for goods and services.

Step by step solution

01

Understand Economic Cycles

The economy moves through different phases, usually described as expansion (growth), peak, contraction (recession), and trough. Cyclical unemployment will rise in some phases and fall in others.
02

Cyclical Unemployment During Expansion and Peak

During economic expansion and peak, demand for goods and services increases. Firms usually hire more workers to meet the growing demand, which results in a decrease in cyclical unemployment. So, we expect cyclical unemployment to be falling.
03

Cyclical Unemployment During Contraction and Trough

During economic contraction and trough, demand for goods and services declines. Since firms require fewer workers to produce the lowered quantity, they lay off workers or simply don't hire new ones, leading to increased unemployment. This means that during these phases, cyclical unemployment is rising. In conclusion, we expect cyclical unemployment to rise during economic contraction and trough phases and fall during expansion and peak phases.

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