“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.