Table of Contents
1 Introduction 4
2 Historical Overview of Oil prices 5
3 Dependence on Oil and Impacts of High Oil prices 7
Determining the Dependence of a Country 8
Dependence on oil-imports 8
Substitution 10
Costs Compared to Income Level 10
Impacts of High Oil prices on the Economy 10
Decline in Aggregate Demand 11
Production Costs 11
Inflation and Unemployment 12
Investment 12
4 How to Minimise the Negative Effects of High Oil prices 13
Monetary Policy 14
Implementing Monetary Policy 15
How Federal Banks Use Their Tools 16
Government Incentives and Environmental Policies 18
Course of Action Diagram 20
5 Conclusion 22
6 Bibliography 23
Table of Figures
Figure 1 ? Oil Price Development 5
Figure 2 ? Comparative Analysis of Oil Dependency in 2004 8
Figure 3 ? Instruments, Targets and Objectives of Federal Banks 16
Figure 4 ? Policy Responses to a Rise in Oil Price 18
1 Introduction
The rising price of oil is a burning theme nowadays that societies have to deal with. The impact of rising oil prices creates economic, as well as social problems. High oil prices can lead to substantial output reductions, decreasing nomina ...