FTCE Social Science Test 2025 – 400 Free Practice Questions to Pass the Exam

Cyclical unemployment occurs as a result of economic downturns or fluctuations in the business cycle. In the scenario described, a decline in auto sales and a slump in the steel industry indicate that there is a decrease in demand for products, which typically leads to reduced production and layoffs within those industries. As the economy contracts, more workers find themselves unemployed due to these cyclical changes, which are directly linked to overall economic activity. Therefore, when unemployment rises in response to a downturn in various sectors, it is characterized as cyclical unemployment, reflecting the relationship between economic cycles and job availability. This is differentiated from other types of unemployment, such as frictional unemployment, which relates to individuals transitioning between jobs, or structural unemployment, which occurs when there is a mismatch between skills and job requirements in the labor market.