Question

A headline states: "Real GDP falls again as the economy slumps." This condition is most likely to produce what type of unemployment?
A. Structural.
B. Cyclical.
C. Frictional.
D. Natural.

Answer 1

Answer:

B. Cyclical.

Explanation:

Cyclical unemployment is the type of unemployment caused by changes in economic conditions. As GDP moves in one direction, cyclical unemployment moves in the opposite direction. Cyclical unemployment arises due to the fact the business or the economy operates cycles.

In times of a recession, the economy slows down; the GDP values are low, resulting in low demand. Due to the downturn, the rate of unemployment will be high; cyclical unemployment will be highest.  When the economy is booming, the rate of unemployment decreases as industries are creating employment opportunities. At this session, cyclical unemployment will be the lowest.