Answer to Question #30971 in Macroeconomics for youssef

Question

what is the long and short run effecy if There is an increase in private domestic investment spending. and An increase in international oil prices.

Answer 1

For much of the period since the October 2000 World Economic Outlook was completed, oil prices have averaged $5 per barrel higher
than assumed in that exercise. A sustained oil price increase of that size
would imply a permanent transfer of about ¼ percent of GDP from global oil
importers to oil exporters, relative to the WEO baseline, with additional
transfers of income from oil consumers to oil producers within countries. Such
a terms of trade shock would affect the global economy through supply and
demand effects as well as via second-round effects on inflation, for example,
through higher wage claims. This in turn would affect the extent to which
central banks raise interest rates to offset inflationary pressures, and
therefore the impact of the oil price increase on real activity. The impact on
asset prices and financial markets would provide additional channels.