EXPLAIN THE CAUSE OF CYCLICAL UNEMPLOYMENT [10] Cyclical unemployment refers to the unemployment that occurs when the economy enters a recessionary phase. In a recession the amount of aggregate demand in the economy falls which results in a fall in the derived demand for labour. The resulting unemployme nt that occurs due to this demand - deficiency is referred to as cyclical unemployment. We can see in the diagram below that as AD decreases from AD1 to AD2, a recessionary gap is created between Y1 and Y2, this decline in output implies that the workers who would normally have produced this amount are now no longer employed. Examples of this type of unemployment occurring include the great depression in the US in 1929, with estimates of unemployment reaching a staggering 40%, and the financial crisis of 2008 , both of which were caused by large falls in spending and demand.