Which unemployment type is caused by the economy not growing quickly enough, pulling activity below potential?

• A. Seasonal unemployment
• B. Cyclical unemployment
• C. Frictional unemployment
• D. Structural unemployment

Answer: (B)

This question is about how unemployment relates to the overall performance of the economy. When the economy isn’t growing quickly enough, demand for goods and services is weak, so firms hire fewer workers. This rise in unemployment because of insufficient economic growth is cyclical unemployment, tied to the ups and downs of the business cycle. It tends to shrink when the economy picks up and activity moves back toward its potential level of output.

Seasonal unemployment comes from regular, predictable patterns in certain industries and would disappear after those seasonal periods end. Frictional unemployment is the short-term unemployment that happens as people move between jobs or enter the workforce. Structural unemployment arises from long-term changes in the economy that make workers’ skills or locations a poor match for available jobs.