Friday, December 18, 2009

How do oil shocks (restricted supply) raise both inflation and unemployment (stagflation)>?

If you could be as detailed as poss. it would be helpful as I am finding it v. confusing. Regards, ColHow do oil shocks (restricted supply) raise both inflation and unemployment (stagflation)%26gt;?
well rising oil prices leads to inflation. not only for business but also for general people and public. oil prices also increases the cost of production for all companies whether they use consume oil directly or not. as transportation cost is rising. companies to maintain there profits usually lay off workers causing unemployment also these companies find it difficult to grow. many small firms who cannot cope with the high cost will shut down causing unemployment .e.t.c...if we look at normal inflation


if prices are rising eg for cds companies will as there is chances of more profits companies will expand so increasing employment

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