Answer to Question #100162 in Macroeconomics for Tiffany

Question

c. Explain the relationship between interest rates and unemployment. How do changes in the interest rate affect the level of unemployment in the economy?
Answer:

Answer 1

1) lower interest rates stimulate the economy and, thus, increase employment. The growth in demand for loans precisely for investment purposes leads to the expansion of production, updating of equipment and technologies, the opening of new industries. New enterprises and production require certain personnel. And this means an increase in employment (which means a decrease in unemployment).

2) an increase in interest rates limits the ability of enterprises to develop and, thus, increases unemployment.