explain the chain effects that takes place in an economy when the price of a commodity is increasing?

When the price of the commodity increases, purchasing power of households decreases(with given money income) as a result aggregate demand decreases. This low demand results in low investment and unemployment and thus further leads to a decrease in demand. Thus, economy is trapped in a vicious circle and cannot come out until new investment is injected in the economy.

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  • Price Increases
  • Affordability Decreases
  • Unemployment Increases
  • poverty Increases.
  • Human capital resoures Decreses
  • economic development decreases
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