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Can you help me with this question please it is very hard

Extract F states that “The fall in oil prices has been a “Net Good” for the economy.”

Using the data in the extracts and your economic knowledge, assess the view a sustained fall in the price of oil can only have positive outcomes for the UK economy.

Reply 1

GTHargs

Original post by Robertto

To reword, this question is asking - speak about the advantages and then disadvantages of a fall in oil prices relating to how they affect the macroeconomic objectives, then at the end weigh up the arguments and give a judgement.

Advantages

Lower prices for consumers (retail prices and living costs) - SRAS shifts to the right - economic growth, reduced unemployment, reduced inflationary pressures. evaluation - how big is the fall in oil prices?/ will this tip the country into deflation(unlikely, more likely to be a positive force for reducing pressure on prices after the depreciation in the pound
Lower input costs - means high competitiveness and thus an improvement in the balance of payments- evaluation - lower oil prices will be benefitting everyone so unlikely to have a large effect, look at what percentage of costs energy effects
Reduction in absolute poverty as living costs fall - positive social implications, less dependence on welfare which is good for government budget (energy subsidies etc.). Evaluation - will this saving go towards reducing the deficit or new spending- how sustainable is current national debt levels?

Disadvantages

The UK exports oil - fall in export earnings - increase trade deficit
Oil producers are price takers mainly, a fall in oil prices will lead to a fall in output due to the upward sloping left to right MC/ supply curve - therefore unemployment. Evaluation - is it structural? will firms hoard labour? do these workers have occupational and geographical mobility?
Negative wealth effect, oil fund prices and energy company stock prices fall - lower wealth equals less consumption and lower AD - blah blah - may lead to investors panicking and fire selling stocks (unlikely, evaluation - how long and sustained will the lower oil prices be?

Judgement

Which one is the better argument, will it be a net benefit or damage to the economy, consumers, workers, society etc. Back up your decision with what you have written your essay. I would say it will be a benefit due to the positive implications it has for consumer prices, international competitiveness and poverty. But ultimately it doesn't matter what you say here so long as it is justified.