Question

Which of the following statements is true of the unemployment rate in a country?

A) It normally increases during periods of economic expansion and decreases during periods of economic contraction.
B) It normally decreases during periods of economic expansion and increases during periods of economic contraction.
C) It normally decreases during periods of both economic expansion and contraction.
D) It is not correlated with the level of economic activity in a country.

Answer 1

Unemployment rate normally decreases during economic expansion and increases during economic contraction, a concept known as cyclical unemployment.

Step-by-step explanation:

The correct statement about the unemployment rate in a country is that it normally decreases during periods of economic expansion and increases during periods of economic contraction. This phenomenon can be explained by noting that the overall state of the economy shifts the labor demand curve, and when combined with wages that are somewhat resistant to decreasing, known as 'sticky downwards', it leads to changes in unemployment.

Cyclical unemployment characterizes the rise in unemployment during a recession because it is directly related to the economic downturn. Furthermore, unemployment tends to lag behind changes in economic activity, commonly rising during recession or depression when economic activity is low, and falling during times of economic growth when activity increases.