Chapter 13, Problem 2MCQ

To determine

The question requires us to determine the type of unemployment caused by a recession.

Explanation of Solution

Unemployment that occurs due to fluctuations in the business cycle (recession or boom period) is considered cyclical unemployment.

Cyclical unemployment increases during the recession because firms fire their workers due to low requirements of workers. If the economy faces a recession, the production of goods and services falls due to a fall in the aggregate demand in the market. During the recession, the labor demand falls while the labor supply increases, and this gap between the number of workers demanded and the quantity of workers supplied represents cyclical unemployment.

So, the unemployment caused by a recession is considered cyclical unemployment.

Thus, option “c” is correct.

Other options are incorrect because:

• Frictional unemployment reflects the unemployment that occurs during the time workers spend in a job search.
• Structural unemployment is unemployment that results when workers available for work lack the skills required for the job.
• The unemployment rate that occurs from the effects of structural unemployment and frictional unemployment is considered the natural rate of unemployment.
• Full unemployment doesn’t say anything about the cause of unemployment.

Economics Concept Introduction

An individual is considered unemployed who is not working, but actively looking for a job.