It’s a short term thing, I.e a few days

Oh, but I thought supply chains were built to be immune to supply shocks?

That doesn’t make sense...

The supply chains are resistant to the shocks like coronavirus - that’s what I said.

It must be rough for Sid to wake up to the news each morning crying trying to figure out how he’s going to spin it so everything is fine lol

The oil price drop won’t effect firms, negatively.

That’s just an excuse. @Sophie

How could I negatively spin lower oil prices?

Unless those firms are involved in oil production.

Yeah, because an oil supply shock has never happened before...

Yes that’s true.

It has but not negatively.

As in a positive supply shock.

Stagflation?

I’m not referring to a rapid decrease in supply, I.e the ‘90 shock

I’m saying the current drop is only going to negatively effect the stock market for a moment. But consumers and businesses win, unless of course you’re an energy producer - but that isn’t the whole economy.

That’s not what happened in the 70s

The 70s is a totally different ballgame, it’s not the same as a large increase in supply now.

The 70s were the opposite, a negative supply shock.

So you’re saying there’s going to be a positive supply shock?

This is positive.

The price of oil declined due to an increase in supply.

The 70s was the opposite.

I get what you’re saying now. That could be good in the short run, but we’ll see in the long run

An increase in supply is normally beneficial for economies, unless you’re russia.

Since consumers and businesses face lower prices, I.e higher real income.

Yeah, but it can also create deflation, which can be less beneficial

Deflation isn’t harmful or harmless - it depends how it occurs.
Supply side deflation is a reduction in prices caused by a shift in production (i.e supply curve shifts out)
Demand side deflation is a reduction in prices caused by a reduction in demand, demand curve shifts in.

The latter can be harmful, the former however is not. What we’re seeing now is the supply side of deflation, this is pretty benign and to be welcomed

Have you learned about the lost decade yet?

Jw

When you see people saying “deflation is harmful and should be avoided ” they’re clueless. However economists use it in context of demand side deflation.

I.e in a recession.

Btw, typically economists talk about leftward and rightward shifts, it’s a bit more precise than “out” and “in”

Deflation also causes a decline of wages. So while what you’re saying is technically true, it’s not applicable to everyone in the economy.

Deflation doesn’t cause a decline in wages, what you’re referring to is demand side deflation. Say in a recession the demand for widgets falls, so the workers producing these widgets see their wages decline, all things constant.

Supply side deflation ends up raising real incomes, for obvious reasons.

When short run aggregate supply shifts right, what happens to the price level?

Falls.

This is pretty good, as it’s economic growth.

And what impact does that have on wages?