The rising price of oil lead to higher oil revenue for oil producing nations. This suggests that___.
Answers
Explanation:
It is likely that both increases in demand and fears of supply disruptions have exerted upward pressure on oil prices.2 Global demand for oil has been increasing, outpacing any gains in oil production and excess capacity. A large reason is that developing nations, especially China and India, have been growing rapidly. These economies have become increasingly industrialized and urbanized, which has contributed to an increase in the world demand for oil. In addition, in recent years fears of supply disruptions have been spurred by turmoil in oil-producing countries such as Nigeria, Venezuela, Iraq, and Iran.
The breathtakingly sharp increase in the price of oil in the last half of 2007 and first half of 2008 has led many to argue that increased speculation in commodity markets has played a role, and indeed there is evidence of increased activity in these markets. However, whether speculation is playing a role in high oil prices is open to debate (Krugman 2008). It is also useful to remember that both the demand for and the supply of oil react sluggishly to changes in prices in the short run, so very large changes in prices can be required to restore equilibrium if demand should move even modestly out of line with supply.
As far as the implications of higher oil prices, there are both microeconomic and macroeconomic answers to that question. I will address both of these aspects in turn.