Discuss If the Unemployment Rate Is Cyclical

Discuss if the Unemployment Rate is Cyclical

Cyclical Unemployment is the result from changes in the business cycle. An example of cyclical unemployment is layoffs and cutbacks resulting from a recessionary economic phase. This type of unemployment exists due to inadequate effective aggregate demand. It gets its name because it varies with the business cycle, though it can also be persistent, as during the Great Depression of the 1930s. Gross Domestic Product is not as high as potential output because of demand failure, due to pessimistic business expectations, which discourages private fixed investment spending. Low government spending or high taxes, under consumption, or low exports net of imports may also have this result. In this case, the number of unemployed workers exceeds the number of jobs available, so that if even all-open jobs were filled, some workers would remain unemployed. This kind of unemployment coincides with unused industrial capacity. Economists see it as possibly being solved by government deficit spending or by expansionary monetary policy, which aims to increase non-governmental spending by lowering interest rates. Finally, high unemployment implies low real Gross Domestic Product: we are not using our resources as completely as possible and are thus wasting our opportunities to produce goods and services that allow people to survive and to enjoy life. As a result, the Unemployment Rate is rather cyclical.