Monday, November 12, 2007

$100 Oil May Mean Recession as U.S. Economy Hits `Danger Zone'

By Simon Kennedy and Joe Richter

Nov. 12 -- Rising fuel prices that businesses and consumers took in stride earlier this year may now be near the point of pushing the weakened U.S. economy into recession.

``We are in a danger zone,'' says Nariman Behravesh, chief economist at Global Insight Inc. and a former Federal Reserve economist. ``It would take two shocks to bring the economy to its knees. We got one shock in the form of the credit crunch. Oil could be that second shock.''

Crude-oil prices are poised to cross the $100-a-barrel mark while the U.S. economy is still reeling from a surge in corporate borrowing costs. Europe and Japan are vulnerable as well, after the U.S. subprime-mortgage collapse contaminated their credit markets.

For the complete article from Bloomberg, click here.

For a video interview with economist, Nariman Behravesh, on how $100 oil could lead to a recession, click here.

Extra Credit: How does an increase in oil prices affect aggregate demand and supply, and the price level in the short run? If you are the first student to send me an e-mail ( with the answer, you will be rewarded with two extra credit Discussion Board points. Only two points extra credit per student can be earned in any given week from the blog questions.

1 comment:

mikesanders13 said...

Lets start with the oil prices itself, the rising oil price should mean that there is less oil than there is demand for. This is not the case, instead the price of fuel is being artificially elevated by the money markets. The increase in oil prices affects the aggregate demand and supply in related ways. The higher the price of the gas means that there is less money in the market that can be used on other things, such as consumers goods or improving our weak economy. The money that is not available due to the rising oil prices leads to lower demands for consumers goods and services. As such it is slowing down our economy .