Oil price change and impact
There was oil price rise in 2005 at bout forty dollars. Due to rise of forty dollars a barrel would cause the slow of U.S economy and even for recession too. It was a shock which preceded by 1973, 1979, 1980 and 1990. More postwar recessions have been accompanied by rising of oil prices. The economy may be based on various factors still the Oil has its own importance as all other factors involved with consumption of energy. Higher oil prices assumed to be inflationary. The increase of oil prices allows raising other prices.
The higher oil prices would also create uncertainty for the consumers and business thereby withholding purchases and investments. Ultimately economy becomes slow. An evidence also exists that when the energy costs increase the oil-dependent industries may lay off for which the cause of unemployment and it directly hits the economy. It was also noticed when there is decline of oil prices given good economic growth during 1999-2000.
At present the U.S.economy maintaining high GDP per capita i.e. $45,850 with inflation 3.7% and low employment rate by attracting immigrants worldwide. But during 70s linked with oil shocks and GDP fell by 3.1%. Due to oil shocks, the recession followed and GDP dropped by 2.9 percent. The Gross Domestic Product declined with 0.5 percent in the third quarter and it worst than expected. It was worst with the third quarter of 2001 when there was last recession. As per the report of Economic Cooperation and Development the economic output will decline by 0.4 percent against 1.4 percent growth prediction for 2008. Hence there will be gain global recession.
American economy changed rapidly since seventy and used much energy per dollar of G.D.P, than thirty years ago. Though United States did not have enough oil products it depended upon oil imports at about 1.5 percent. The consumers have to spent energy cost which is less than five percent of average household budget. There was a poor monetary policy in seventies and oil crisis helps to turn economic crisis. But now the Federal Reserve will better manage the interest rate by understanding of oil prices.
Oil prices shock will have effect the macro economy of an oil importing country like United States. Such price shock causes slow down the rate of growth and even for recession. Consequently it causes to increase of inflation rate. The oil price is type of tax on consumption and the benefits will go to the Oil producers but not to the United States. Hence the rise in price of oil will go to the producers. Since the United States’s economy major depends upon Oil and energy, rise and fall of price will hit the economy. Such rise in prices also hit on monetary policies. The high oil price significant change in the world and U.S.economy.
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