4.5.4 Macroeconomic Policies Effects

Question 1

What happens to inflation when commodity prices fall?

Answer 1

• decrease cost push inflation ( short term )
• and an increase in demand pull inflation ( long term )

Question 2

What happens to economic growth when commodity prices fall?

Answer 2

• increase in AD
• increase in C
• increase in disposable income
• increase in output
• increase in profits

Question 3

What happens to unemployment when commodity prices fall?

Answer 3

• increases in AD = increase in derived demand = increase in employment

Question 4

What happens to the balance of trade when commodity prices fall?

Answer 4

• increase in imports
• decrease in trade balance = trade deficit

Question 5

What happens to businesses investment when commodity prices fall?

Answer 5

• increase in AD = increase in investment = increase in animal spirits
• increase in profits and revenue