Which of the following could be considered a cost of cyclical unemployment?

• A. A decrease in overall economic output
• B. A reduction in frictional unemployment
• C. An increase in the natural rate of unemployment
• D. A rise in voluntary job changes

Answer: (A)

Verified step by step guidance

1. Understand the concept of cyclical unemployment: it arises from fluctuations in the business cycle, typically increasing during recessions and decreasing during expansions.
2. Identify what costs are associated with cyclical unemployment: since it reflects insufficient demand in the economy, it usually leads to a reduction in overall economic output because fewer people are employed to produce goods and services.
3. Analyze each option in the context of cyclical unemployment: a decrease in overall economic output aligns with the direct consequence of cyclical unemployment, as less labor input reduces total production.
4. Consider why the other options are less relevant: a reduction in frictional unemployment relates to job search processes, an increase in the natural rate of unemployment refers to long-term structural factors, and a rise in voluntary job changes is about worker preferences, none of which are direct costs of cyclical unemployment.
5. Conclude that the cost of cyclical unemployment is best represented by a decrease in overall economic output, as it captures the immediate economic impact of reduced employment during downturns.