Causes and Implications of Cyclical Unemployment

E

Cyclical unemployment occurs due to recessionary business conditions and inadequate aggregate demand for labor.

Cyclical unemployment is a type of unemployment that occurs due to fluctuations in the overall economic activity of a country. It is often associated with periods of economic downturns or recessions. The correct answer to the question is:

E. a downturn in economic activity.

Explanation:

Cyclical unemployment is primarily caused by changes in the business cycle, which consists of alternating periods of expansion and contraction in an economy. During economic expansions, businesses are generally thriving, and there is a higher demand for goods and services. As a result, firms tend to hire more workers to meet the increased demand. This leads to low levels of unemployment.

However, during economic contractions or recessions, there is a decrease in overall economic activity. Businesses may face reduced demand for their products or services, and as a result, they may have to reduce their workforce. This reduction in employment opportunities leads to an increase in unemployment, which is known as cyclical unemployment.

During economic downturns, companies may implement cost-cutting measures, including layoffs and hiring freezes, to adapt to the decreased demand. As a result, workers who were previously employed may lose their jobs and become unemployed. The extent of cyclical unemployment depends on the severity and duration of the economic downturn.

Option A, inaccurate and/or costly information about job opportunities, does not accurately describe cyclical unemployment. While job market information can influence the efficiency of job matching, cyclical unemployment is primarily driven by macroeconomic factors rather than information-related issues.

Option B, an inadequate matching of qualified workers and available jobs, is more related to structural unemployment, which arises from a mismatch between the skills of workers and the requirements of available jobs. It is not the primary cause of cyclical unemployment.

Option C, not enough employees to fill available jobs, is not a cause of cyclical unemployment. Cyclical unemployment arises precisely when there is a surplus of workers due to a decline in demand for goods and services.

Option D, insufficient employment in the building trades, is not a comprehensive explanation for cyclical unemployment. While a decline in employment in specific sectors, such as the building trades, can contribute to cyclical unemployment during a recession, it does not capture the broader economic factors that drive cyclical unemployment.

In summary, cyclical unemployment is primarily caused by a downturn in economic activity. Economic contractions and recessions lead to reduced demand for goods and services, which results in layoffs and reduced hiring, leading to an increase in cyclical unemployment.