Question

The U.S. unemployment rate increased from 4.6% in July 2001 to 5.9% by June 2002. Without studying the subject in any detail, would you expect that a change of this kind is more likely to be due to cyclical unemployment or a change in the natural rate of unemployment? Why?

a) Cyclical unemployment is likely the cause.
b) A change in the natural rate of unemployment is the probable reason.
c) Both cyclical and structural factors contribute equally.
d) Insufficient information to determine the cause.

Answer 1

The rise in unemployment from 4.6% to 5.9% within a year is most likely due to cyclical unemployment, associated with economic downturns, rather than changes in the natural rate of unemployment, which usually occurs more slowly due to structural changes.

Step-by-step explanation:

The increase in the U.S. unemployment rate from 4.6% in July 2001 to 5.9% by June 2002 is more likely to be due to cyclical unemployment. This type of unemployment correlates with the business cycle fluctuations in economic growth. When the economy goes into a recession or experiences slower growth, businesses reduce their workforce, leading to a rise in unemployment. As this change occurred over a relatively short period, it is less likely because of a change in the natural rate of unemployment, which tends to evolve due to structural factors in the economy and changes more gradually over time.