Question

The economy in a particular country is booming. Real GDP is growing at a rate of 6% per year, well above the average growth rate. Under these circumstances, which of the following types of unemployment is most likely to be the lowest?

a) Frictional unemployment
b) Structural unemployment
c) Cyclical unemployment
d) Seasonal unemployment

Answer 1

In a booming economy with a high GDP growth rate, cyclical unemployment is most likely to be the lowest because it is closely tied to economic health and decreases when there's increased demand for labor.

Step-by-step explanation:

When a country's economy is booming and real GDP is growing significantly, like at a rate of 6% per year, the type of unemployment most likely to be the lowest is cyclical unemployment. Cyclical unemployment is directly related to the health of the economy and tends to decrease when the economy is doing well because businesses have higher demand and are hiring more. In contrast, frictional unemployment and structural unemployment are components of the natural rate of unemployment and may persist irrespective of economic cycles. Frictional unemployment occurs due to the time it takes for employers and job seekers to find a match, while structural unemployment happens due to changes in the economy that result in a mismatch between skills and job requirements. Seasonal unemployment, on the other hand, relates to the seasonal nature of certain jobs and is not necessarily influenced by the overall economy's performance.