Answer 1) Short Run Aggregate Supply is the relationship between Real GDP and the Price Level. In other words, it shows how much the economy can produce in the short run. An increase in price level of oil in the short run will force the producers to reduce the supply of oil in the economy . Following diagram will suitably explain the effect of rise in oil prices on Short Run Aggregate Supply: SRAS’’ SRAS Demand The above figure shows that when the price of oil increases, producers will shft the supply backwards on account of high input prices. As a result, real GDP falls and price level rises and a serious situation of Stagflation is created.
Also there was a boom in housing in the early 1920’s that led to a surplus of houses, causing the housing sales to decrease. With this, less construction was needed, therefore shrinking the labor force and slowing down the economy. Production would also decrease for the automobile industry because it was an interest sensitive industry. Therefore, jobs vanished from the two industries causing the economy to stagnate. All of this was because of the raised interest rates from the Federal Reserve causing a chain reaction that would slow down the economy leading it into the Great Depression.
Economist Nakajima Makoto says that "younger households, lower-income households in each age group, and extremely wealthy households" suffered from "a larger loss than average" in income. This is because the value of housing and stocks declined sharply during the Great Recession. Younger households tend to have a greater proportion of their wealth in housing, while wealthy households tend to invest more heavily in stocks (Makoto 2013). The decrease in consumer demand led to decreased investment in businesses because the businesses were suffering from a lack of demand from consumers, leading to lower stock
Then as refining capacity improved, prices began to fall, both nominally and in inflation adjusted terms (Inflation Data, 2016). Flash forward to 1979. The Iranian revolution ... ... middle of paper ... ...lace give big oil tax breaks and subsidies, further increasing their wealth and profits. In my view, the cons far outweigh the pros to the question: Is four-dollar a gallon gas good or bad for America? I believe it is bad for America, as it puts too big of a burden on consumers and pushes the economy towards a recession.