answer questions following the article: \"What is the cause of the high unemploy

Question

answer questions following the article: "What is the cause of the high unemployment rate? One side says more government spending can reduce it. The other says its a structural problem-people who can't move to take new jobs because they are tied down to burdensome mortgages or firms that can't find workers with the requisite skills to fill job opening. source: Wall street journal"

Questions:

Which business cycle theory would say that the rise in unemployment is cyclical?

Which would say it is an increase in the natural rate? Why?

Explanation / Answer

1-ANS-Unemployment is caused when someone is laid off, fired or quits -- and is still looking for a job. This type of natural unemployment always occurs, even in a healthy economy. If someone retires, goes back to school or leaves the work force to take care of children or other family member, that is not unemployment. Also, if someone gives up looking for work, they are also not counted as unemployed by the Federal government. For this reason, some people say the government undercounts the real unemployment rate.

2-ANS-'Cyclical Unemployment'-

A factor of overall unemployment that relates to the cyclical trends in growth and production that occur within the business cycle. When business cycles are at their peak, cyclical unemployment will be low because total economic output is being maximized. When economic output falls, as measured by the gross domestic product (GDP), the business cycle is low and cyclical unemployment will rise.

Economists describe cyclical unemployment as the result of businesses not having enough demand for labor to employ all those who are looking for work. The lack of employer demand comes from a lack of spending and consumption in the overall economy.

Cyclical unemployment is one of five classes of unemployment as recognized by economists. Other types include structural, frictional, classical and Marxian. In most cases, several types of unemployment exist at the same time. With the exception of cyclical unemployment, the other classes can be occurring even at the peak ranges of business cycles, when the economy is said to be at or near "full employment".

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