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?

Rise.

Wages don’t rise when the price level falls

Have wages been falling for people in the computer industry? The prices of those have been falling too.

I don’t know what’s happened to real wages in the computer industry

So I can’t comment

As workers get more productive, they’re able to produce more obviously. Causing a reduction in the price of such goods - but also an increase in wages.

Since workers are paid on their marginal product, both wages and prices rise/decline respectively.

This is the case for oil prices now, the supply curve will shift out causing a reduction in prices; a rise in real income.

Deflation refers to price deflation.

Yeah you might also be thinking of monetary deflation too, this is a reduction in the money supply. @abby_ella - not relevant here.

Hapakala donut

We're heading into a recession and the reason is depressed demand, for oil and everything else except hand sanitizer

GG @DrYuriMom, you just advanced to level 7!

I don't have or want to debate it endlessly. We'll see it and so there's no point.

I can agree with this statement, your actually right.

@DrYuriMom We aren’t heading for a recession.

The stock market dropping isn’t indicative of a recession because: the oil prices falling are due to an increase in supply - this is actually beneficial for the economy.

*was dropping