Facts About Oil Prices An economic factor which affects the economy of the entire world is the price of oil. It is destructive to the economic status of developing countries while it tightens the budget or economy of the developed countries. The supply, demand, and terms of trade of an economy are all affected by both the increase and decrease of oil prices. Other economic agents such as the domestic homeowners, central banks, the government, the inflation rates, the exchange rates, and the stock market are also affected when a shock in oil price occurs. As the demand for oil increase, the purchasing power of domestic homeowners decrease. An increase in precautionary savings and an increase in the cost of using machineries run by energy applies this fact. The increase in the cost of oil production, on the other hand, affects the supply side of the economy. Lastly, due to the heightened costs of import, particularly for net-oil importing nations, strenuous terms of trade occur. Some countries rely on oil import for the growth of their economy. This results to their exposure to other nations which leads them to be taken advantage of. Countries must decrease oil prices in order to match the world price which is lower. A negative return for these countries occur due to the increase in production costs. This is the picture when the federal reserve begins implementing measures and manage economies. Restructuring the economy is the intention to suit the immediate change in the price of oil which has affected the world as a whole. A lot of economists protest the idea that the problem will just grow if the budgetary policies are manipulated. An increase in consumer spending creates a high demand for commodities when there is a decrease in interest rates. Oil prices are pressured with this growth of investment. Countries that are heavily dependent on the act of importing oil are the countries that become susceptible to bankruptcy. It is great news when an economy has high spending. The underlying problem connected to oil prices are however neglected by countries. If the economy has increased spending, it means that the savings of that economy are less. When people are caught off guard by a sudden increase in the cost of gas or oil, they tend to save and limit their spending. Producers of oil are affected by losing profit because less oil or gas is being consumed due to the increase of price. This now results to the less production of gas and oil by producers or company owners which increases the cost of production. A continuous cycle of monetary decline is to be expected of this. Because of oil prices, one aspect of economy, inflation rates, is going to be affected. A depreciation of the US dollar will cause a cheapness in oil imports in non-dollar-denominated currencies.Why not learn more about Apps?
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