Explain how high oil prices may be a cause of recession.?

oil is kinda a neccesity today, thus has an inelastic demand curve.....which means a higher price results in greater expensiture.....which i turn mean u dont have money to spend on other goods........which results in the level of aggregate demand falling.....which may lead to recession......on the other hand.....high oil prices mean more money for some countries to spend which in turn means more investment and high economic grwoth.....thats actually wats happening nowadays....Explain how high oil prices may be a cause of recession.?
The price of oil affects the cost of transportation. When oil prices go up it costs more to deliver goods, prices go up, demand falls, company profits go down, unemployment goes up, people have less money to spend, demand falls further. You then have the perfect condition for a recession.Explain how high oil prices may be a cause of recession.?
People will stop 'going' as much because of higher gasoline prices. When they stop going as much, they stop spending as much. When retail sales slow down the wholesale sales slow as well. It follows then that manufacturing and service industries start dropping. This is where layoffs and terminations begin. Everybody is in a hurt. All because of the greedy bastarrds at big oil trying to create bigger profits for their investors so they can get bigger bonuses for being such great managers and CEOs!
Simply put, higher fuel prices are inflationary. When prices are inflated the value of money people have is worth less, so their buying power decreases. With a decreased buying power agregate demand (the sum of all demand for all things) is lower because people don't have the money to pay for them. Lower demand means lower consumption and a falling consumption is a recession.
Why don't you work on your homework by yourself. Don't cheat!
High oil prices permeate all aspects of our economy. Both production and consumption prices will change, thus inflation. Economic growth will be dampened, thus less folks working. It is a recipe for stagflation, a condition when the economy slows down, while inflation heats up. This can cause a lot of misery.
The answer is short and simple. Think in terms of the basic aggregate supply and demand graph.





High oil prices are reflected in a shift up and to the left of the aggregate supply curve, which results in a new equilibrium with higher prices and decreased output of goods and services, which is by definition a recession.

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