Assuming the economy is at full employment,a decrease in aggregate demand will most likely cause a change in which of the following types of unemployment?

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Quizplus · Accepted Answer

A decrease in aggregate demand would lead to a decrease in output and hence the demand for labor, leading to a higher level of cyclical unemployment. As full employment is the long-term level of unemployment that occurs when the economy is producing at its potential, the unemployment rate cannot decrease below the natural rate of unemployment (which consists of frictional and structural unemployment). Seasonal unemployment is specific to certain industries that experience fluctuations due to seasonal factors and the reduction in aggregate demand will not necessarily affect it.

Assuming the Economy Is at Full Employment,a Decrease in Aggregate