Involuntary Unemployment in the Contraction Phase of Business Cycle

Business cycle refers to the regular fluctuations in economic activity that an economy experiences over a period of time. The business cycle has four phases - expansion, peak, contraction, and trough. In the contraction phase, the economy experiences a decline in business activity, which leads to a decrease in output, income, and employment. In this phase, there is a large scale of involuntary unemployment.

Factors leading to involuntary unemployment in the contraction phase of the business cycle:

1. Decrease in demand for goods and services: In the contraction phase, there is a decrease in demand for goods and services. This leads to a decrease in the production of goods and services, which in turn leads to a decrease in the demand for labor.

2. Reduction in investment: During the contraction phase, businesses reduce their investment in capital goods, which leads to a reduction in the demand for labor.

3. Decrease in consumer spending: In the contraction phase, consumers reduce their spending on goods and services, which leads to a decline in the production of goods and services. This reduction in production leads to a decrease in the demand for labor.

4. Business closures: During the contraction phase, businesses may be forced to close due to a decline in demand for their products or services. This results in a large number of workers losing their jobs.

Conclusion:

In the contraction phase of the business cycle, there is a large scale of involuntary unemployment due to a decrease in demand for goods and services, reduction in investment, decrease in consumer spending, and business closures. The government can adopt various policies such as fiscal and monetary policies to boost demand and reduce unemployment during this phase.

Involuntary unemployment means those who need job but there will be no job opportunities in contraction phase only there is a downfall in the economic activities also there is an unemployment so option C is your answer