Since Fall of 2011,the price of oil has shown a sharp increase again as continuationsteady rise in oil price attributed to the Arab Spring (thepolitical uprising in the Middle Eastern and North Africancountries) started in the beginning of 2011. This upward trend ofoil price has been further triggered by the recent tension in Iranon its Nuclear proliferation and the threat of blocking the oilexport through the Harmuz Strait. Accordingly, many analysts in theenergy field have predicted the likelihood of rise in oil price upto $5/gallon by coming summer in the US market.
Given the circumstances above about the oil market, draw an AS/ADdiagram, which shows the effect on the US macro-economy of expectedoil price @ $130+ per barrel versus the oil price at $100+ perbarrel (in the beginning of 2012). In your explanation in wordsabout the diagram, you must clearly explain the connectionbetween changes in oil price and the fluctuations in macroeconomicfundamentals in the US economy. Then show the impact ofcontinuous rise oil price on the US economy by using the AD-ASmodel during the recovery period of the economy from its greatrecession of 2008. (The most recent price of crude oil is about$104+/barrel).
http://www.bloomberg.com/energy/
Please see the url link here in addition an older WSJ article onoil price and macroeconomic effect I attached separately ashint.
Dated June 1, 2010:
http://online.wsj.com/article/SB10001424052748704269204575271213611411940.html?KEYWORDS=oil+price
Jan 28, 2011:
http://money.cnn.com/2011/01/28/markets/oil_egypt/index.htm
Label your diagram clearly and explain how higher oil prices impacteither AS, AD or both.
Finally, explain why sharp rise in oil pricesmight not necessarily have negative or positive impact on the USequity markets even at the current trend of volatile oilprices.
Note: Keep inmind that the oil price is not the same as the price level inmacroeconomics diagrams, even though the changes in oil priceindirectly affect the general price level (such as CPI and GDPD).You do not necessarily need to draw the diagram for oil market toanswer this question. However, drawing of macroeconomic model ofAD-AS behavior impacted by the changes in oil price isrequired.
Since Fall of 2011,the price of oil has shown a sharp increase again as continuationsteady rise in oil price attributed to the Arab Spring (thepolitical uprising in the Middle Eastern and North Africancountries) started in the beginning of 2011. This upward trend ofoil price has been further triggered by the recent tension in Iranon its Nuclear proliferation and the threat of blocking the oilexport through the Harmuz Strait. Accordingly, many analysts in theenergy field have predicted the likelihood of rise in oil price upto $5/gallon by coming summer in the US market.
Given the circumstances above about the oil market, draw an AS/ADdiagram, which shows the effect on the US macro-economy of expectedoil price @ $130+ per barrel versus the oil price at $100+ perbarrel (in the beginning of 2012). In your explanation in wordsabout the diagram, you must clearly explain the connectionbetween changes in oil price and the fluctuations in macroeconomicfundamentals in the US economy. Then show the impact ofcontinuous rise oil price on the US economy by using the AD-ASmodel during the recovery period of the economy from its greatrecession of 2008. (The most recent price of crude oil is about$104+/barrel).
http://www.bloomberg.com/energy/
Please see the url link here in addition an older WSJ article onoil price and macroeconomic effect I attached separately ashint.
Dated June 1, 2010:
http://online.wsj.com/article/SB10001424052748704269204575271213611411940.html?KEYWORDS=oil+price
Jan 28, 2011:
http://money.cnn.com/2011/01/28/markets/oil_egypt/index.htm
Label your diagram clearly and explain how higher oil prices impacteither AS, AD or both.
Finally, explain why sharp rise in oil pricesmight not necessarily have negative or positive impact on the USequity markets even at the current trend of volatile oilprices.
Note: Keep inmind that the oil price is not the same as the price level inmacroeconomics diagrams, even though the changes in oil priceindirectly affect the general price level (such as CPI and GDPD).You do not necessarily need to draw the diagram for oil market toanswer this question. However, drawing of macroeconomic model ofAD-AS behavior impacted by the changes in oil price isrequired.
