Explain how each of the following events or policies will affect unemployment in a neoclassical model: tax cut for consumers a rise in business confidence that increases investment a fall in export sales to a major trading partner a rise in income levels for consumers throughout the economy cheaper imported products a fall in government spending

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Inflation and Purchasing Power Theory

In economic terms, Inflation refers to the increase in the costs of various commodities which are used in daily lifestyle like food, clothes, transport, etc. over a specific time. It may lead to a fall in the purchasing power of the people and also affects the exchange rate of the currency because of the price increase. As the purchasing power falls the unit of the currency in the economy falls. When the prices of the commodities are decreased, then the purchasing power of the consumers will rise, then it will lead to deflation and changes the currency of the base economy to that of the foreign economy which will lead to change in exchange rates.