Falling oil prices will lead to increased employment

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“Falling oil prices will lead to increased employment, higher wage rates and increased real money balances.” Comment on this statement with the help of an AD-AS diagram and explain the short-run and long-run adjustment processes.

Typically, falling material prices such as this are interpreted at a positive supply shock. Currently, one might argue that falling oil (and other commodity) prices are from declining demand, i.e., an adverse demand shock. Please answer this question for both cases.

Reference no: EM131002253

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