Q.Explain cyclical unemployment with reference to the business cycle.

Cyclical unemployment rises during the recession/slowdown phase of the business cycle, when falling aggregate demand causes firms to cut production and lay off workers, and falls again during recovery. …

The business cycle describes the periodic fluctuation of an economy between phases of expansion (recovery and boom) and contraction (slowdown and recession/depression). Cyclical unemployment is the unemployment associated specifically with these fluctuations.

During a recession or slowdown, aggregate (total) demand for goods and services in the economy falls. Firms facing lower demand for their output respond by cutting production, and to cut production they reduce their workforce — leading to lay-offs and rising unemployment. This unemployment is "cyclical" precisely because it is tied to where the economy currently sits in the cycle, not to any individual worker's skills or job-search behaviour.

As the economy moves into recovery and then a boom phase, aggregate demand rises again, firms expand production, and many of the previously laid-off workers are re-absorbed, so cyclical unemployment falls. …

Describing cyclical unemployment as if it were permanent — by definition it moves WITH the cycle and is expected to fall again on …