Canadian Securities Course (CSC) Level 1 Practice Exam

What is the key characteristic of cyclical unemployment?

1. It is caused by changing seasons

2. It results from individuals temporarily in between jobs

3. It is related to economic upturns and downturns

4. It is due to a mismatch between job vacancies and job seekers

The correct answer is: It is related to economic upturns and downturns

Cyclical unemployment is directly linked to the fluctuations in economic activity and is characterized by its relationship with the business cycle. During periods of economic downturns or recessions, demand for goods and services falls, leading to a decrease in production and, consequently, a reduction in the workforce as businesses lay off employees. Conversely, during economic upturns, hiring increases as demand rises, which can reduce cyclical unemployment. In contrast, the other choices describe different forms of unemployment. Seasonal unemployment relates to specific times of the year or seasons, such as agricultural work. The temporary nature of individuals being between jobs describes frictional unemployment, which occurs when workers are transitioning between positions. Lastly, a mismatch between job vacancies and job seekers refers to structural unemployment, which happens when there is a disconnect between the skills of the workforce and the requirements of available jobs. Thus, the defining characteristic of cyclical unemployment is its dependence on the broader economic climate, making the identification of option C as the right choice accurate.