Question

The price of oil went down sharply in response to the Coronavirus crisis. How do you expect the decline in the price of oil to influence the economy in the short and medium run?

Answer 1

Answer - In the short and medium run , the fall in the prices of oil will lead to the decline in the price of other goods. This will increase the real income of the consumers. Hence the consumption will rise. The fall in the oil prices will also lead to the lower cost of production and hence increase the supply in economy. This will reduce the inflation caused by the increased consumption and increased real income. Hence there will be positive impacts upon the economy in short and medium run.