Today we're going to look at cyclical unemployment unemployment correlated with the ups and downs of the business cycle using our friend the Fred database it's easy to see that unemployment increases during a recession when the economy is shrinking or growing only very slowly indeed low growth and high unemployment that's part of what define a recession lower growth is usually accompanied by high unemployment for two reasons first and most obviously when GDP is falling or growing more slowly than expected firms often lay off workers which generates unemployment the second reason is slightly more subtle higher on unemployment means that fewer workers are producing goods and services and when workers are sitting idle it's likely the capital is also sitting idle in an economy with idle labor and capital well it can't be maximizing growth although unemployment is clearly correlated with the business cycle the exact reasons why are debated by economists to see some of the issues notice for example that unemployment typically spikes quickly when growth declines but then it returns to more normal levels only slowly the unemployment rate spiked in 2023 for example as the economy declined by 2023 the economy was actually growing at a slow but steady rate of around 2% per year but unemployment didn't return to pre-recession levels for another five years why did it take so long for the unemployment rate to return to more normal levels think about a typical market say the market for apples unemployed apples in this case would be apples that aren't being bought now in a situation with high apple unemployment you'd have a higher quantity supplied than the quantity demanded at the current price so what would you expect to happen in this situation well ordinarily the price of apples would...
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