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ACCA Applied Knowledge · Business and Technology · Macroeconomic factors

A country's economy enters a recession and many manufacturing firms reduce output because demand for goods has fallen sharply. Workers are laid off across the whole economy. Which type of unemployment is this?

This is cyclical, or demand-deficient, unemployment. It arises when aggregate demand falls during a recession, so firms cut output and lay off workers across the economy. It differs from frictional or structural unemployment, which relate to job searching and skill or location mismatches.

  1. AFrictional unemployment
  2. BCyclical (demand-deficient) unemploymentCorrect
  3. CStructural unemployment
  4. DSeasonal unemployment

Explanation

Unemployment caused by a general fall in aggregate demand during the downturn of the business cycle is cyclical, also called demand-deficient. Frictional unemployment concerns people temporarily between jobs, and structural unemployment arises from a mismatch of skills or location with available jobs.

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