In macroeconomics, cyclical unemployment refers to unemployment that is primarily caused by which factor?

• A. Seasonal patterns in labor demand that create predictable job losses at certain times of the year
• B. Workers temporarily between jobs because they are searching for better matches for their skills and preferences
• C. A downturn in the business cycle that reduces aggregate demand and leads firms to lay off workers
• D. A long-term mismatch between workers’ skills and the skills demanded by employers due to technological change or globalization

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the definition of cyclical unemployment. It is the type of unemployment that arises due to fluctuations in the overall economic activity, specifically related to the business cycle.
2. Step 2: Recognize that the business cycle consists of periods of expansion and contraction (recession). During a downturn or recession, aggregate demand decreases.
3. Step 3: Analyze how a decrease in aggregate demand affects firms. Lower demand for goods and services leads firms to reduce production and lay off workers, increasing unemployment.
4. Step 4: Differentiate cyclical unemployment from other types such as seasonal unemployment (caused by predictable seasonal changes), frictional unemployment (due to job searching), and structural unemployment (due to skill mismatches).
5. Step 5: Conclude that cyclical unemployment is primarily caused by a downturn in the business cycle that reduces aggregate demand, leading to layoffs.