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Impact of opec on oil market
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The recession of 1973 through 1975, was due to the Organization of Petroleum Exporting Countries (OPEC) who rose gas prices and imposed an embargo against the United States. This quickly caused oil production to be cut dramatically, leaving no choice but to increase the price in oil. This recession, I am going to pin point the causes, fiscal and monetary policy the government uses to help the economy slowly come out from the recession. Also I am going to pin point the recession’s recovery and expansion.
The causes of this recession was due to the unemployment being too high and how it had rose even higher through the years. The unemployment rate was at 4.9% by the fourth quarter and rose significantly at 8.3% by the fourth quarter of 1975. This recession was quite severe since World War II. There has to be a cause of why the unemployment rate was continuing to rise and the reason for this recession, was the decline in the investment purchases. The GDP continued to fall because of the decline in investment.
This model shows the decrease in investment purchases, decreased the aggregate demand, showing the GDP to also decrease as well. “The decreases in investment purchases was in all components of investment spending; producer equipment, producers structures, residential structures and the changes in business inventories.” (The U.S. Recession of 1973-75).The oil price increases from the OPEC, causing a decrease shift to the aggregate supply because oil is a component on the supply side. Below is an AD/AS model to show the shift in aggregate supply from the cause of increase in the oil price. This graph shows by the change in aggregate supply, it caused an increase in price level and a decrease in GDP.
Cutting back on inves...
... middle of paper ...
..., the economists can now go off of knowing when home prices are down, banks tightening lending standards, and a “debt retrenchment” underway, they know the recovery could have a chance of taking a long time.
Works Cited
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Auxier, Richard C. "Reagan's Recession." Pewresearch.org. Pew Research Center RSS, 14 Dec. 2010. Web. 13 Nov. 2013.
Macropoland, a natural gas and oil importer, has a natural rate of unemployment of about 4.5% and a long run average rate of inflation of about 2%. However, there are two specific time periods where these rates fell below their potential. During the period between 1973-1974, the country had an inflation rate of about 15%, with an unemployment rate of nearly 13%. And now, they are experiencing an unemployment rate of 9% and an inflation rate of 0.4%. As their new economic advisor, it is my job to explain these two time periods.
These conditions have the ability to cause recession. Now that an armistice has been reached in Korea, a recession is beginning to occur (Pach and Richardson, 54). I believe that the President’s chief concern should not be to make an immediate and fast acting restoration of the general economy. The problems of the federal deficit and the recession must wait until the more important problems are dealt with. The problem at hand is the rising rate of unemployment.
The July 1990- march 1991 recession lasted eight months and was caused by many different adverse financial problems on the environment in the early 90’s. Most post was recessions are short as this one was. They tended to last only up to eleven months at a time. On October of 1987 Black Monday occurred which caused the stock market to crash. The Persian war joined with the rising infiltration rates created this recession. When the recession began the Fed began to try to reduce infiltration, which then limited economic expansion.(Kevin Mulligan Recessions) Extreme changes in the GDP growth began to emerge at the beginning of 1990’s, however the overall growth seemed to remain positive. As a result of this recession a loss of consumer and business confidence was lost due to rising of oil prices along with an already weak economy.
Isidore, C. (2008, December 1). It's official: Recession since Dec. '07. CNNMoney. Retrieved March 4, 2014, from
There was a recession with high interest rates and high inflation, beginning literally as soon as the war came to an end. Nixon urged there to be wage and price control to try to stop it from occuring, but it didn't work. Gerald Ford (his successor) spent a lot of his time talking about this, but didn't do much. The next president, Jimmy Carter, is still blamed for it still to this day, but he derived the problem from two previous presidents.
"How the Great Recession Has Changed Life in America." Pew Research Centers Social Demographic Trends Project RSS. PewResearch, 30 June 2010. Web. 14 Mar. 2014.
Every few years, countries experience an economic decline which is commonly referred to as a recession. In recent years the U.S. has been faced with overcoming the most devastating global economic hardships since the Great Depression. This period “a period of declining GDP, accompanied by lower real income and higher unemployment” has been referred to as the Great Recession (McConnell, 2012 p.G-30). This paper will cover the issues which led to the recession, discuss the strategies taken by the Government and Federal Reserve to alleviate the crisis, and look at the future outlook of the U.S. economy. By examining the nation’s economic struggles during this time period (2007-2009), it will conclude that the current macroeconomic situation deals with unemployment, which is a direct result of the recession.
When most people think 1950’s the popular show “Happy Days” comes to mind; although, these were anything but happy days. The 1950’s were an era of prosperity, growth, and chaos in the United States; men were returning from World War 2 and many new babies were born. The population during this time was about 151,684,000 with an unemployment figure around 3,288,000 (Bradley). Industries began to expand in order to meet the needs for all the new people looking for work and thirty percent of the work force was in industry and commerce. Corporate America was emerging and corporation profits increased such that change could be seen on a macro scale. The economy was booming steady until the recession in 1957; although, this recession was nowhere near as great as the depression.
"World Socialist Web Site." GDP, Consumer Spending Contract as US Plunges into Recession -. N.p., n.d. Web. 04 May 2014.
Organisation for Economic Co-operation and Development. (2010) Employment outlook 2010 – How does Australia compare? Retrieved August 19, 2010, from http://www.oecd.org/dataoecd/14/38/45603025.pdf.
A recession is where there is temporary economic deterioration which lasts longer than a few months, sometimes years. This can be seen by the employment rate decreasing and the reduction of trade and industry work. This is determined by the Gross Domestic Product (GPD) which is a government statistic which shows the total country’s economy movement. This is measured every 3 months (quarterly) and it is said that if after two consecutive quarters the GPD is down then the country is seen to be in recession. (Kollewe, 2009). The most recent recession in the UK kick-started in 2008, which was seen to be one of the worst recessions the UK has seen since the Great Depression. In July 2008 was when it became increasingly obvious that we was about to enter a recession; the unemployment rate kept rising, the housing industry started to cut thousands of jobs and the whole-sale industry was declining in production. (Allen, 2010)
What caused the Great Recession that lasted from December 2007 to June 2009 in the United States? The United States, a country with an abundance of resources from jobs, education, money and power, went from one day of economic balance to the next, suffering major dimensions of crisis. According to the Economic Policy Institute, it all began in 2007 from the credit crisis, which resulted in an 8 trillion dollar housing bubble (n.d.). This was said by Economist analysts to be attributed to the collapse in the United States. Even today, strong debates continue over major issues caused by the Great Recession, in part over the accommodative federal monetary and fiscal policy (Economic Policy Institute, 2013).
In economics, a recession occurs when there is a slowdown in the spending of goods and services in the market. A recession causes a drop in employment, GDP growth, investment, as well as societal well-being. All recessions are caused by a specific cause, but the Great Recession of 2007-2009 was caused by a crash in the housing market. This crash was triggered by a steep decline in housing prices. All of a sudden, people bought houses because there was an excessive amount of money in the economy and they thought the price of houses would only increase. (Amadeo, 2012). There was a financial frenzy as the growing desire for homes expanded. People held a lot of faith in the economy and began spending irrationally on houses that they couldn’t afford. This led to overvalued estate and unsustainable mortgage debt. (McConnell, Brue, Flynn, 2012).
In 1970 oil reserves became more scarce, leading to a decrease in production, while consumption continued to grow rapidly (Wright, R. T., & Boorse, D. F. 2011). In order to fill the gap between rising demand and falling supply of oil, the United States became more and more dependent on imported oil, primarily from Arab countries in the Middle East. (Wright, R. T., & Boorse, D. F. 2011). As the U.S and many other countries became highly industrialized nations, they became even more dependent on oil imports. With demand being higher than the actual amount of supply, prices kept rising reaching a peak of $140 a barrel in 2008. (Wright, R. T., & Boorse, D. F. 2011).