Demand Deficient or ‘Cyclical Unemployment: Demand deficient unemployment occurs when the economy is below full capacity. For example, in a recession Aggregate Demand (AD) will fall leading to a decline in output and negative economic growth. With a fall in output firms will employ fewer workers because they are producing fewer goods. Also some firms will go out of business leading to large scale redundancies. In recessions, unemployment tends to rise rapidly as firms lay off workers.