A/A* Guarantee

7 Day Money-Back
Guarantee

500+ Grades Boosted

Home > Economics FAQs Blogs > How is demand deficient unemployment defined?

How is demand deficient unemployment defined?

Relevant Topics

This question pertains to topics in Macroeconomics, such as Unemployment

Definitions:

Demand deficient unemployment, also known as cyclical unemployment, is a type of unemployment that occurs when there is insufficient demand in the economy to provide jobs for everyone who wants to work.

Detailed Explanation:

Demand deficient unemployment happens when the aggregate demand (AD) in an economy is insufficient to provide jobs for everyone who wants to work. It typically occurs during a recession or downturn in the economic cycle when output falls, leading to job losses and increased unemployment.

When aggregate demand is low, firms reduce production due to a lack of sales. This reduction in production means that fewer workers are needed, leading to layoffs and thus increasing unemployment. This is demand deficient unemployment.

The level of demand deficient unemployment will vary directly with the business cycle. During an economic upturn or boom, demand deficient unemployment will tend to fall as firms increase production to meet rising demand. Conversely, during an economic downturn, it will tend to rise.

Recent: 

The 2008-2009 global financial crisis resulted in a significant increase in demand deficient unemployment. As a result of the crisis, aggregate demand fell significantly across many economies, leading to decreased production and increased unemployment.

Similarly, the COVID-19 pandemic caused an enormous drop in demand across many sectors, particularly those heavily dependent on person-to-person contact such as hospitality, travel, and leisure. This caused a surge in demand deficient unemployment, with many workers in these sectors losing their jobs due to the drop in demand.

Summary:

In summary, demand deficient unemployment is a type of unemployment that occurs when there is insufficient aggregate demand in the economy to provide jobs for everyone who wants to work. It often varies with the business cycle, increasing during economic downturns and decreasing during upturns. Examples from recent history include the global financial crisis and the COVID-19 pandemic, both of which led to significant increases in demand deficient unemployment due to substantial drops in aggregate demand.

Whenever you're ready there is one way I can help you.

If you or your child are looking to Boost your A level Economics Grades in under 30 days, I'd recommend starting with an all-in-one support network where you get 24/7 access to a SuperTutor:

Join EdGenie 🧞‍♂️: Transform your A-Level Economics essays and exam marks (genuinely) with our comprehensive on-demand learning platform. This carefully curated course blends engaging content with effective exam techniques, the same ones that have empowered over 1,000 of my students to achieve an A or A* over the last 13 years. 
Thanks for hopping on board EdGenie's Frequently Asked Questions! 
I'm Emre, and I've got a big goal - to make A* education accessible to all A-level students.
And it Starts With You!

Emre Aksahin
Chief Learning Officer at Edgenie