Changes in the Price of Oil in Relation to its Effects on the World’s Economy
It is a fact that oil, apart from the meaning of fuel or energy, has also the meaning of power, especially for the countries that produce it or have control over its production, and the rise or fall of its price creates economic disturbances and worries all over the world. Inflation, interest rates, exchange rates, are some of the factors that depend on the price of oil and are more addicted to its changes. So, it is not a surprise, that all the powerful countries like Russia and USA, are trying continuously during the last years to increase their share of the “energy pie”, especially now that the situation of international economy and the low levels of oil fields, are creating an unstable environment. According to Sloman (1997 : p.p. 124-127), OPEC is probably one of the best known cartels. It is a formal collusive agreement that has one purpose, to maximize industry’s profits. The interdependence of those countries makes them to collude with each other and make them act as a monopoly. Crude oil prices behave much as any other commodity with wide price swings in times of shortage or oversupply. The crude oil price cycle may extend over several years.Over the last year, the price of oil had increased worldwide, approxima
As a result businesses lost profits on one hand and on the other, there has been a reduction in consumption expenditure. Even the United States, which is considered to be the world’s most powerful economy, affected from the fluctuation of the oil prices. The first important effect was the psychological, because the expenditure for heating increased twice or triple and there would have been expected a reduction in other secondary or main consumption expenditure. So what can we do to stop being depended from this collusion? The history has shown in previous oil crises that development of energy saving technology; taxation and new fuel-efficient cars or maybe new oil fields may decrease consumption of oil and make oil more elastic so as to lead its prices down. The four macroeconomic objectives are interconnected and when achieving for example economic growth and low unemployment by boosting consumer expenditure, it is possible to cause higher inflation rates and so on. Money flows into the circular flow of income. According to Begg et al. (1998: p.p.465-466) higher prices reduce the real money supply, interest rates rises and aggregate demand falls, full employment and potential output will be reduced as well. Other causes of inflation will be less competitive exports and
Some topics in this essay:
According Sloman,
According Begg,
,
Russia USA,
price oil,
consumption expenditure,
oil prices,
competitive exports,
low levels,
economic growth,
inflation rates,
oil fields,
oil price,
$2500 barrel,
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Approximate Word count = 868
Approximate Pages = 3 (250 words per page double spaced)
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