In: Economics
What is the increase in unemployment above equilibrium unemployment caused by a fall in aggregate demand associated with the business cycle?
. Aggregate demand means the total demand of the economy and it
includes the total demand of the household sector industrial sector
Government and rest of the world therefore with the fall in
aggregate demand increases the rate of unemployment in the economy
because the aggregate demand associated with the aggregate supply
in an economy if aggregate demand decreases then it means there is
a decrease in the aggregate supply.
Unemployment is a situation where all the resources are not fully
utilised and underemployment equilibrium is a situation which is
existing below the full employment equilibrium where aggregate
demand is less than the new aggregate demand for the actual
aggregate demand lies on the underemployment equilibrium.
Increase in unemployment above equilibrium unemployment is caused
by a fall in aggregate demand because aggregate demand of all the
sectors decreases because of the decrease in the aggregate supply
it is a common phenomenon in the economy where all the things are
based on the two forces that are demand and supply or the aggregate
demand and aggregate supply so this is the only reason the full
employment and underemployment equilibrium situation are also based
on the aggregate demand and aggregate supply.