Question

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

Short answer

Expansionary fiscal policy

Step-by-step solution

Step 1. Define cyclical unemployment. 

Unemployment that is tied to industry or business cycle cyclical tendencies is referred to as cyclical unemployment. When an economy is doing well, cyclical unemployment is at its lowest, and it is at its worst when it starts to decline.

Step 2. Policy tools for dealing with cyclical unemployment.

If there is a recession and unemployment grows, we can utilize an expansionary fiscal policy (lower taxes or increased government spending) or an expansionary monetary policy (lower interest rates) (increase the money supply and lower interest rates). Both policies boost output while simultaneously cutting unemployment.