If interest rate falls how does it affect inflation & unemployment?

Answer 1

The interest rate is the cost of borrowing money. When Interest rate falls, the the quantity of money borrowed increases and therefore aggregate demand (that is, the amount of consumer and investment expenditure in the economy) increases. If the economy is not at full capacity and therefore less than full employment, an increase in aggregate demand would create excess demand and encourage suppliers to increase production. More persons would be hired and the unemployment rate would fall. However, if the economy is already at full capacity, then an increase in aggregate demand (expenditure) would put upward (inflationary) pressure on the price level.

Answer 2

Typically, unemployment decreases. As to inflation, there are too many other variables involved...

Answer 3

If you believe the conservative approach, money gets easier to borrow so business borrow more, spend more and hire people. Since there is more money around, people spend and prices go up. When prices go up it's called inflation.