Answer to Question #240971 in Macroeconomics for Shimmy

Question

Assuming a fall in the price of oil, use. The AD-AS framework to explain the impact on prices, employment and income

Answer 1

When the price of oil decrease, the price of other products will also decrease. This is based on the fact that transport factor also contributes to the final price of a product.

The fall in price will also encourage people to expand their business as others coming up with new businesses. This is based on the fact that people may want to take advantage of the decrease in price, hence increasing employment.

Any reduction in price encourages consumers spendings. Therefore, when the oil price decreases consumers will similarly decrease based on the idea that price reduction acts as a motivational factor, hence generating more income.