The diagram shows aggregate demand falling during a recession. The type of unemployment that results from this fall in demand is called
Question 1 Report
The diagram shows aggregate demand falling during a recession. The type of unemployment that results from this fall in demand is called
Answer Details
The correct answer is cyclical unemployment.
Cyclical unemployment (also called demand-deficient unemployment) occurs when aggregate demand falls during a recession. As the AD curve shifts to the left, firms sell less output and respond by reducing their workforce. The level of unemployment rises and falls with the business cycle, increasing during downturns and decreasing during recoveries.
Frictional unemployment is the short-term unemployment that occurs as workers move between jobs and is not linked to the business cycle. Structural unemployment results from long-term changes in the economy that create a mismatch between workers' skills and available jobs. Seasonal unemployment is caused by predictable, time-of-year variations in demand for labour. None of these types is driven by a general fall in aggregate demand.
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