Answer:
The impact of decline in oil prices to the overall economy with regard to wages, employment and unemployment is given below.
Explanation:
Oil is used by many firms, some of which use it for production in which case the oil is an input in their related costs while others use it indirectly such as in running of transportation.
When the oil prices decreases it will result in rise in demand for oil by these firms, as they can utilise oil for further production (for direct use) or purchasing & running transportation to be use in their business. This will result in more work and the demand for labour will increase which will cause the wage rate to increase, employment-population ratio to increase and the unemployment to decrease.
The wages would rise, employment ratio would rise and the unemployment in the economy would fall.
A positive supply shock would cause the prices of the oil to decline. This fall in prices is an indirect effect of this discovery. A more direct effect would be a fall that would occur in the cost of production.
Then the fall in oil prices would lead to a rise in the real income of the economy. Also causing a rise in aggregate demand.
This would then lead to a rightward shift of the demand curve. Therefore the wages would rise, employment ratio would rise and the unemployment in the economy would fall.
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