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Q. 5.

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Principles of Economics
Found in: Page 781

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Short Answer

What are the different policy tools for dealing with cyclical unemployment?

By expanding monetary and fiscal policies and depreciating the exchange rate, the policy makers can deal with cyclical unemployment.

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Step by Step Solution

Step 1. Meaning of cyclical unemployment.

It is the component of overall unemployment that results directly from cycles of economic upturn and downturn. It generally rises during recessions and falls during economic expansions.

Step 2. Different tools to prevent cyclical unemployment.

a) Policy makers should focus on expanding output, which is most effectively achieved by stimulating demand. The good of expansionary monetary and fiscal policies is to boost aggregate demand by cutting interest rates and taxes.

b) Policy makers may also depreciate the exchange rate in order to boost export demand or introduce specific legislation and initiative that target particular areas of the economy.

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