Cyclical Unemployment

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Cyclical unemployment occurs when an economy's output deviates from potential GDP- i.e. the long-term trend level of output in an economy.  When an economy's output is higher than the level of potential GDP, resources are utilized at levels higher than normal and cyclical unemployment is negative.  Conversely, when an economy's output is lower than the level of potential GDP, resources are utilized at levels lower than normal and cyclical unemployment is positive.

Put simply, cyclical unemployment is unemployment associated with business cycles- i.e. recessions and booms.

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