How do unemployment and interest rates relate in short run?

Economics Dec 12, 2020

Expert Solution

Interest rates indirectly affect the unemployment rate. Lowering interest rates stimulates the economy as it makes the cost of credit cheaper, resulting in an increase of the level production and consumer demand. As the level of production increased, the company would hire an additional worker for a higher productivity level, which leads to a lower unemployment rate while reverse scenario would happen when the central bank hike interest rates.

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