Effect on unemployment, Macroeconomics

Assignment Help:

From the lower left graph of Fig. it can be seen that there is a time lag associated with an oil price shock and its subsequent effect on unemployment. The results show that for the following year there is no real diversion from the trend and therefore in the short term, unemployment is not significantly effected by an oil price shock. However throughout the medium term and into the long term the unemployment rate is shown to be up to 0.5% higher as a result of the oil price shock. The trend does not stabilise throughout the five year period and therefore it can be drawn that from an oil price shock there is a significant lasting effect on the unemployment rate in the UK.

Finally from the top right graph from Fig. exchange rates seem to follow economic theory. Mankiw (2010) explains that a reduction in the net exports of an economy will result in a depreciation of that economy's exchange rate. Whilst the graph shows that the exchange rates are initially above the normal level following an oil price shock, towards the end of the short term, throughout the medium term and into the long term the real exchange rate has depreciated by two basis points and does not revert back to the original trend throughout the period.

In summary, oil price shocks do draw out great responses from three of the five macroeconomic indicators tested. GDP, inflation and interest rates were all proven to be Granger caused by oil prices indicating that there is a significant relationship between them. In this paper, the results are negative for UK economic performance. The Cholesky impulse response functions show long periods of economic recession and fluctuating levels of inflation for the following four to five years post oil shock. In addition to this, unemployment and exchange rates are also both negatively impacted by a shock in oil prices. Like interest rates, these impacts appear long lasting and do not revert back to their previous trend throughout the five year period. Therefore following a shock in oil prices this model shows that the overall economic performance of the UK will suffer greatly throughout the short and medium term, and will stabilise only in the long term although the economy may be left with a high level of long term unemployment.


Related Discussions:- Effect on unemployment

Theory of aggregate demand, unplandned change in inventory are coutned as i...

unplandned change in inventory are coutned as investment spending by firms

Aggregate supply and demand, Aggregate Supply and Demand 1. The equati...

Aggregate Supply and Demand 1. The equation for expenditure GDP is 2. Sketch a fully labeled aggregate supply and demand diagram for an economy that is in full employment equ

Elasticity of demand questions need to be done in graphs, To really underst...

To really understand it, compute the following price elasticities of demand: ·          The price of a laptop increases by 20% and there is a 40% drop in the quantity dem

What do you meant by investment, Q. What do you meant by Investment? Wh...

Q. What do you meant by Investment? When we use the word investment, we characteristically mean 'gross investment'. Fundamentally, gross investment comprises all finished goods

Macroeconomic models, Now we will analyse how macroeconomic variables fit t...

Now we will analyse how macroeconomic variables fit together and present models which explain the main macroeconomic variables.  Using these models we can, for instance, analyse

First investment yields a gain, An investor has a choice of 2 investment op...

An investor has a choice of 2 investment opportunities. The first investment yields a gain of $2800 with probability of 0.37, a gain of $1100 with probability of 0.27, and otherwis

Intertemporal choices , ) Consider an economy where individuals live for 2 ...

) Consider an economy where individuals live for 2 periods and have prefer- ences represented by ln(c) + ß ln(c') where c and c' represent consumption in the first and second perio

Economies of scale, what are the limitation of economies scales

what are the limitation of economies scales

The income tax rate is reduced, If income falls below its potential and the...

If income falls below its potential and the income tax rate is reduced, this will: A. raise the passive deficit but reduce the structural deficit. B. raise both the passive and str

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd