Causes of cyclical unemployment.

Causes of cyclical unemployment.

Task 1.

Depending on the causes, unemployment can be classified as frictional, cyclical, or structural. Cyclical unemployment occurs where the decline in business organizations’ performances compels them to lay off workers in adjustment efforts to cut costs (Keynes, 2018). The situation follows a fall in demand for services and products, leading to a decline in organizational performances. Cyclical unemployment is common during economic recessions Causes of cyclical unemployment. Conversely, frictional unemployment occurs where a section of the labor force does not have jobs temporarily due to various reasons (Keynes, 2018). One of the reasons is that a section of the labor force has completed education and are searching for jobs. Some of the workers may also have left old jobs, are looking for new ones, or planning to make more productive investments (Keynes, 2018). The workers may have left the old jobs voluntarily, while others may have been fired. Structural unemployment occurs in situations where the mismatch between the skills the employees have and those needed by the employers differ (Keynes, 2018). New technology is a situation where organizations start using robots in response to advancements in technology. At the same time, the employees may not have the knowledge and skills needed to manage the robots (Keynes, 2018). Consequently, the organizations might lay off some of their employees and employ fewer ones with skills and knowledge in the management of robots

At Riverside, there are 330,000 people. The civilian labor force comprises around 40% (132,000) of the population.Approximately 15% of the labor force has lost jobs since their skills are no longer needed by employers. Thus, they are experiencing structural unemployment. The number experiencing structural unemployment is around 19,800 people. Simultaneously, around 30% of the civilian labor force does not have jobs because of the busted economy. They are experiencing cyclical unemployment. The number of the civilian workforce experiencing cyclical unemployment is 39,600 people. At the same time, around 55% of the civilian workforce at Riverside are looking for jobs. They are experiencing frictional unemployment. The number of people, civilian workforce experiencing frictional unemployment at Riverside is 72,600 Causes of cyclical unemployment.

Task 2.

Based on the information given by the Bureau of Economic Analysis (BEA), the consumer confidence index (CCI) has declined by 20%. Simultaneously, there has been a breakthrough in technology in the cell phone and medical industries that has led to a reduction in production costs. The breakthrough has led to increased productivity across the country. As Carbaugh (2016) explains, a reduction in consumer confidence leads many people to reduce spending and investments. Eventually, this leads to a decline in the aggregate demand (AD) in the nation (Carbaugh, 2016). As such, in the figure below, a 20% reduction in CCI will lead to a reduction in AD from AD2 to AD1.

Real Output/GDP









Effect of decline in consumer confidence




In the short-term, a decline in the AD will lead to a situation where the supply is higher than the demand. The higher supply than demand will push the prices of services and products to reduce from P2 to P1. The aggregate supply (AS) will remain the same, but the prices will decline as measured using the consumer price index (Carbaugh, 2016). However, an increase in productivity due to technology advancements will lead to more products in the market. The result will be an increase in the AS, which will lead to a shift in the AS curve from AS1 to AS (Carbaugh, 2016). However, the shift will lead to a further decline in prices from p 1 to p3. Initially, the decline in CCI and overall spending will lead to a negative impact on the gross domestic product (GDP) (Carbaugh, 2016). However, the reduction in prices will stimulate spending, leading to an increase in the GDP eventually Causes of cyclical unemployment.

Task 3.

The exchange rate for the US dollar to Japanese Yen increases from 120¥/$ to 130¥/$. Simultaneously, the exchange rate for the US dollar to the sterling pound increases from 1.3€/$ to 1.5€/$. The increase will have an impact on the imports and exports in the US, Japan, and the UK.As Carbaugh (2016) explains, an increase in the value of a currency relative to another reduces the prices of the country’s products with a stronger currency. However, imports in the country where the currency has depreciated become more expensive (Carbaugh, 2016). In the US, an appreciation of the US dollar will make imports from both Japan and the UK cheaper. As such, dollar appreciation is likely to lead to an increase in imports from the UK and Japan to the US. At the same time, the imports priced in the dollar will become more expensive in both the UK and Japan. As such, the appreciation of the dollar is likely to discourage importation in Japan and the UK. Thus, the dollar’s appreciation is likely to lead to an increase in exports from the UK and Japan to the US. At the same time, the exports from the US to the UK and Japan will decline Causes of cyclical unemployment.


Carbaugh, R. (2016). International Economics. Cengage Learning, 2016. Boston, MA: Cengage


Keynes, J. M. (2018).The General Theory of Employment, Interest, and Money. Cham: