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Macroeconomics. The oils price - Essay Example
This paper discusses whether the oils price shocks are responsible for both recessions and increases in the rate of inflation and whether we can expect inflation and recessions in world's major economies if the price of oil remains at or above the level reached during the past 12-18 months…
However, how the various economic indicators behave during this short period of 'supply shock' and how they forecast performance or health of the economy in the coming period is the moot question.
Inflation may be defined as "state of economy, where there is a general and abnormal rise in price of all goods and services". Recession is a state of economy where there is a "slump in Gross Domestic Product in two or three successive quarters of a year with general price rise or fall". In the short run, when a price of a product which is consumed every sector of the economy which contribute to GDP have suddenly risen, other things remain the same, lead to rising prices all commodities and services, fall in real value of money and slow down of economic growth. This phenomenon is attributed to 'supply shock'.
Built-in inflation - induced by adaptive expectations, often linked to the "price/wage spiral" because it involves workers trying to keep their wages up with prices and then employers passing higher costs on to consumers as higher prices as part of a "vicious circle". Built-in inflation reflects events in the past, and so might be seen as hangover inflation. It is also known as "inertial" inflation, "inflationary momentum", and even "structural inflation.
Cost Push inflation or Supply ...