VCE Stuff > VCE Economics
Oil
chid:
could discuss full employment
Since oil is a key input in the production process, rising prices may cause firms to direct fewer resources towards wages/salaries.
marbs:
This is what I have for Price Stability so far... Thoughts? How can I improve on it.
--- Quote --- Price stability is about keeping the sustained increase in the general price level to an acceptable minimum, defined as 2-3% on average over the business cycle. Its main concern is inflation - which is a rise in the average value of a basket of goods and services. Part of the governments objective is keeping inflation low, which will help other objectives including economic growth and full employment. Recently the price of one barrel of crude oil has risen from $US 20 in 2001 to the recent figure of $US 130. In 1990 Australia’s inflation rate was over 5%, which was aided by the increase in the price of oil which was at $US60 double the average for the period, these two can be directly linked. The reason oil price was high because of the Gulf War in 1990. As a result of the Iraq War and other factors including supply constraints, the oil price has risen, and inflation is back on the rise. Increasing steadily to nearly 4% in 2006, now in March 2008 the rate is 4.2%. As a result of the increase in the price of oil, and increase in inflation, the RBA has risen Interest Rates to 7.2% in a bid to slow inflation. High interest rates attempt slow inflation,by slowing down consumption spending, in turning slowing down aggregate demand, finally slowing down economic activity.
--- End quote ---
costargh:
Looks the goods (Y)
But I'd change
--- Quote ---Part of the governments objective is keeping inflation low, which will help other objectives including economic growth and full employment.
--- End quote ---
to something like
--- Quote ---Part of the governments objective is keeping inflation within this 2-3% range which will help in the achievement of other government objectives such as economic growth and full employment.
--- End quote ---
Also, just wondering. Which inflation rate are you quoting? Because I think it would make a difference whether you were using headline inflation or underlying inflation because I think if you were quoting the underlying inflation rate then your statements after that would be incorrect because the underlying inflation rate would already have eliminated the volatile price changes in oil which would be expressed in a lower inflation rate than that of the headline inflation rate (or at the value of oil would have less of an impact on the change in underlying inflation than it would to headline inflation)
Maybe someone else can clarify that what I have said is correct. Not sure
Collin Li:
In perfect markets, the inflation of oil should not affect efficient resource allocation. It is more the other way around. An inefficient resource allocation causes an inflation (or deflation of oil).
When the oil prices are going up, it is generally going to be because it's moving towards the "correct" and efficient price. Oil is scarce, it's price is supposed to increase.
marbs:
--- Quote from: coblin on July 17, 2008, 06:44:59 pm ---In perfect markets, the inflation of oil should not affect efficient resource allocation. It is more the other way around. An inefficient resource allocation causes an inflation (or deflation of oil).
When the oil prices are going up, it is generally going to be because it's moving towards the "correct" and efficient price. Oil is scarce, it's price is supposed to increase.
--- End quote ---
hey coblin would say mines correct when analysing the effect of an increase in oil price on price stability.
If there something missing when analsying the actual effort on the objective
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