Discuss How Rising Oil Prices Might Affect the Macroeconomic Performance of an Economy

The consensus from the 1970s and 1980s was that there was an inverse relationship between oil prices and real economic activities. This belief later changed when the oil price crash of the mid-1980s failed to boost economic growth. Researchers then believed that increasing oil prices negatively affect the economy whereas falling oil prices have very little impact and by the 1990s this impact was assumed to be minimal (DePratto, de Resende and Maier 2009). More recently, researchers have found that increases in the oil prices adversely affect the economy whereas the impact of a decline in oil prices on GDP growth is only negligible (Jimenez-Rodriguez and Sanchez

More often, higher oil prices falter the overall global economy. While exporting countries may enjoy the returns on transactions, importing countries, especially the net importers, largely suffer the consequences of high petroleum prices thereupon slowing down the deelopment of the global economy. The impact of high oil prices on importers and the entire world economy cannot be underrated as they adversely affect the growth of the importing economies in various ways. For one, with a rise in oil prices, commodity cost also rises signalling bad times for the recipient economies (Yépez-Garcia and Dana 90). Commodities such as food are dependent on oil for transport and shipment

In a revealing article by George Perry (2001) the author discusses the economic impact that a disruption in the oil supplies would have on world oil prices. He states “Currently 28 percent of the world's crude oil comes from the Organization of Arab Petroleum Exporting Countries (OAPEC) consisting of Arab Muslim nations, some of which are not part of the OPEC cartel. The governing regimes in all these countries are at some risk [due to the war on terrorism].” He goes on to state that in a worst case scenario the economic consequences of oil supply disruption would be “oil prices rise to $161 per barrel driving gasoline price to $4.84 per gallon. The increase in the nation's bill for products of crude oil rises by about 10 percent of GDP, which adds perhaps 15 percent to the inflation rate in the first year. And the recession is the steepest and deepest of the postwar period, with GDP declining nearly 5 percent the first year.”

When trading oil it pays to keep an eye on the major consuming nations, as any increase or decrease in usage is sure to have an impact on the commodities performance. Something that is also worth monitoring – with this tying into the performance of major consuming nations – is OPEC, the Organisation of the Petroleum Exporting Countries. This international organisation works to ensure both the stablisaiton of the oil markets, along with coordinate and unify petroleum policies. Current members of OPEC include mass-producing oil nations (13 in total, including Saudi Arabia, UAE, Iran, Iraq, and Qatar). Considering that OPEC has the power to decide policies related to the production and sale of petroleum oil, it certainly has the power to impact the price, flow, and distribution of oil worldwide.

As known to all, domestic trade is more costly than the international trade because of the existing comparative advantages in each country. A country in an autarky cannot benefit from arbitrage of trade; and naturally, the cost of production will be higher compared with the cost of international trade. In this case, the price of the domestic U.S. oil will raise. At the same time, the limiting imports will also ramp the price of imported oil from other countries, which results in an inevitable positive oil shock in an AS-AD model. Holding the aggregate demand curve unchanged, the growth of oil price straightly shifts the aggregate supply curve upward; the country confronted with inflation and short-run output cutbacks. It exactly matches the prediction that Yglesias said: “the overall economy would slow down with inflation-adjusted incomes falling” . Even if the economy could recover back to equilibrium after the shock disappears, it is still a long journey. Thus, restricting the imports would attract a visible shrink from the economy caused by booming of oil

This report will consist of the causes and consequences of the changing price of WTI crude oil and recent trends in the global price of oil. It will also include the effects of the ever-changing price of oil on individuals, business firms, governments and the economy.

For example, the Intercontinental Exchange while oil prices have not been decided on by oil producers such as Niami refinery fires, Nigerian Pirates and global oil markets. The laws of demand and supply are also predicted by the increase and decrease in the prices of oil. Oil prices are driven by the increase in demand for oil which has limited or completely destroyed the gains for suppliers and producers. While the U.S still consumes more oil than any other country, it is evident from the increase in oil demand that developing countries such as China, India and Japan are driving oil prices higher by their continous growth in oil demand (Anderson, 1).

In the year 2050, the whole world notice that oil was starting to become scarce. One thing all the countries saw was all the oil refineries were starting to go out of production which lead to high prices. Although

Graph 1 represents the major companies and nations which product crude oil. It also represents how the bent crude oil price has fluctuated from 2004 until 2014. From 2004-2008 it is evident that there is a steady rise in oil prices, from $35-$150 per barrel. Towards the end of 2008 it is evident that there is a significant drop in oil prices, from $150- $32 per barrel. This is due to the Global Financial Crisis (GFC) where the stock market collapsed on October 28, 1928, through this came the rapid decrease in oil prices. From 2009-2011 there is a steady increase in oil prices which was caused by the stock market repairing itself from impact of the GFC. In 2013 we are able to see declining oil

The dramatic decline in the oil price since 2014 has a significant impact on the global economy. (Jiménez-Rodríguez, 2015). How does such and unexpected price decline in the oil price shock has impact the UK economy, precisely and which of the industry sectors where emerge as the beneficiary or the loser from the decline of the oil price, whether the change in the oil price has affected the UK government income and their balance sheet. In order to response to those questions, I use the computable general Eviews. to ananlyze the effects of price changes on the oil price on the UK economy.

Assuming the OPEC has created a more competitive oil market, and it leads to a dramatic decrease in the world average oil price. Deal to the situation as described above, Australia is standing at a position that the rate of inflation decreases significantly. Considering the relevant response towards the change of rate of inflation, the level of real GDP and the unemployment rate in the short term operation and long term operation respectively, this analysis on OPEC would be divided into two main parts: the outcomes without the lower inflation rate causing a change in potential output and the outcomes with such a change in potential output. In addition, the framework of aggregate demand and the aggregate supply would be employed in the explanation

Food prices and the prices of other materials will also increase as a result of peak oil, which is another economic impact. This is because all countries rely on imports of food or other materials. For example, more than 80% of the imports to America are goods and industrial equipment ($2.268 trillion) and the smallest import category is food ($115 billion). These rates will be affected due to peak oil because most of these imports are either shipped, or are received by transportation, which runs on oil as a fuel. When peak oil is reached, ships and other methods of transportation would not have enough fuel to run on which therefore results in countries not receiving materials they need. This issue greatly affects low-income countries such

In this text, I concern myself with the contents of two articles based on recent microeconomics issues. During the last two months, the price of gas in the U.S. has been on an upward trend. Taking into consideration recent happenings on the international scene, this trend could have been triggered by many different factors. The articles I make use of in this case discuss the rising oil and gas prices.

Oil is used in the production of many goods and services and countries dependant on oil would face cost push inflation which is denoted by an upwards shift of the AS curve in Figure 5 from to as shown in the figure below. We see that prices have increased from to and we will have a negative output gap as output has decreased from to . If the Central Bank is forced to set inflation as low as possible, they could go about it by reducing aggregate demand from to but output has to fall even further to . The cost to output and employment by forcing a low inflation is greater when it comes from a supply shock, and this already assumes that the Central Bank knows perfectly what is happening in the economy. In the past, the Federal Reserve placed a greater priority on reducing the output gap and unemployment and they eased its monetary policy in response to these oil shocks (Clarida, Gal´ı, and Gertler, 2000) . Once again, the trade-off between employment and inflation is highlighted, as they were willing to accept a much higher level of inflation while placing a greater emphasis on other macroeconomic priorities. Yet, if the Central Bank is forced to set inflation to as low as possible, we will have to tolerate a very high (negative) output gap, unless they are able to use other methods to reduce inflation, which will be discussed later in this essay.

Economic growth can defined as increase in the market value of the goods and services produced by an economy over time. Usually, it is measured as the percentage rate of increase in real gross domestic product (GDP). Gross Domestic Product (GDP) defined as market value for final goods and service in a country for a year. Besides, it can be defined as country’s standard living. To calculate GDP, it can include all private and public consumption, government outlays, investment and import and export. The continuous raising of oil price is worrying each people. Based on Prasada et. al., (2007), they said that when oil price increasing, there will be exists a