CIMA BA1 Syllabus A. Macroeconomic And Institutional Context Of Business - Unemployment And The Trade Cycle - Notes ^{11 / 17}

Types Of Unemployment

1. Cyclical unemployment

   Caused by a decline in the general level of economic activity

2. Structural unemployment (Long Term)

   May be due to a lack of skills, or wages being set artificially high

3. Frictional unemployment (Short term)

   This is due to the time it takes workers to find jobs, or due to seasonal factors.

The amount of STRUCTURAL and FRICTIONAL unemployment is sometimes called the ’natural rate of unemployment’.

The Deflationary Gap and cyclical unemployment

The economy is currently in equilibrium at Ye (with aggregate demand AD) but it would need to be at Yf (with aggregate demand AD2) to achieve full employment.

A deflationary gap can be described as the extent to which the aggregate demand function will have to shift upward to produce the full employment level of national income.

If the level of aggregate demand is below the level need to sustain full employment, there is said to be a deflationary gap