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    Can anyone please help with this A Level question? Is there a movement along the AD curve?
    An economy is a net exporter of crude oil. Draw an AD/AS diagram to show the
    effect of an increase in global crude oil price on the equilibrium level of real
    national output of this economy.
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    Ok crude oil prices increases, this should lead to an increase in the value of exports for the country. Therefore the value of X-M increases, so there is an increase in AD. I think this is right?
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    Either way it wouldn't be a movement along the curve, there would be a shift in the curve of AS/AD, can't remember which but maybe I've given you an idea..
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    (Original post by dnichols)
    Can anyone please help with this A Level question? Is there a movement along the AD curve?
    An economy is a net exporter of crude oil. Draw an AD/AS diagram to show the
    effect of an increase in global crude oil price on the equilibrium level of real
    national output of this economy.
    Net exports (X - M) is a component of AD, which means that if an economy is a net exports (i.e. they export more oil than they import), then a rise in the price of oil will lead to a rise in X - M and thus AD as well. The reason it should rise, I believe, is because the PED for oil (a commodity) is very inelastic as it doesn't have that many substitutes. Therefor, an increase in the price of oil should lead to an increase in total spending on oil, meaning that the economy (because it is a net exporter, not a net importer) will, get an increase in net exports.

    You could still find, however, that SRAS would potentially decrease, due to the fact that any firms in the country that use (i.e. for transport, productoin etc...) would experience a rise in costs, and so there would be a general rise in the costs of production of most firms in the country, leading to a leftwards shift of SRAS.

    Honestly, I am not certain about my logic (hopefully someone comes into correct me if I am talking nonsense lol), but I hope that helps (if its correct).

    EDIT: I didn't even answer your question properly hahahaha. No, there wouldn't be a movement along the AD curve.
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    (Original post by azizadil1998)
    Either way it wouldn't be a movement along the curve, there would be a shift in the curve of AS/AD, can't remember which but maybe I've given you an idea..
    Many thanks.
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    (Original post by KevinLonge)
    Net exports (X - M) is a component of AD, which means that if an economy is a net exports (i.e. they export more oil than they import), then a rise in the price of oil will lead to a rise in X - M and thus AD as well. The reason it should rise, I believe, is because the PED for oil (a commodity) is very inelastic as it doesn't have that many substitutes. Therefor, an increase in the price of oil should lead to an increase in total spending on oil, meaning that the economy (because it is a net exporter, not a net importer) will, get an increase in net exports.

    You could still find, however, that SRAS would potentially decrease, due to the fact that any firms in the country that use (i.e. for transport, productoin etc...) would experience a rise in costs, and so there would be a general rise in the costs of production of most firms in the country, leading to a leftwards shift of SRAS.

    Honestly, I am not certain about my logic (hopefully someone comes into correct me if I am talking nonsense lol), but I hope that helps (if its correct).

    EDIT: I didn't even answer your question properly hahahaha. No, there wouldn't be a movement along the AD curve.
    Thanks for this detailed response which has helped clarify things.
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    (Original post by KevinLonge)
    Net exports (X - M) is a component of AD, which means that if an economy is a net exports (i.e. they export more oil than they import), then a rise in the price of oil will lead to a rise in X - M and thus AD as well. The reason it should rise, I believe, is because the PED for oil (a commodity) is very inelastic as it doesn't have that many substitutes. Therefor, an increase in the price of oil should lead to an increase in total spending on oil, meaning that the economy (because it is a net exporter, not a net importer) will, get an increase in net exports.

    You could still find, however, that SRAS would potentially decrease, due to the fact that any firms in the country that use (i.e. for transport, productoin etc...) would experience a rise in costs, and so there would be a general rise in the costs of production of most firms in the country, leading to a leftwards shift of SRAS.

    Honestly, I am not certain about my logic (hopefully someone comes into correct me if I am talking nonsense lol), but I hope that helps (if its correct).

    EDIT: I didn't even answer your question properly hahahaha. No, there wouldn't be a movement along the AD curve.
    The question specifically mentions that what the effects will be for the oil exporting economy. So if the price of oil rises it would likely lead to a reduction in SRAS as you said because even though their exports experience a rise in value, domestic firms still have to pay more for things like transport leading to a rise in cost push inflation no matter of it is an oil importing or exporting economy as the worldwide price is the same.
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    (Original post by KevinLonge)
    Net exports (X - M) is a component of AD, which means that if an economy is a net exports (i.e. they export more oil than they import), then a rise
    in the price of oil will lead to a rise in X - M and thus AD as well. The reason it should rise, I believe, is because the PED for oil (a commodity) is very inelastic as it doesn't have that many substitutes. Therefor, an increase in the price of oil should lead to an increase in total spending on oil, meaning that the economy (because it is a net exporter, not a net importer) will, get an increase in net exports.

    You could still find, however, that SRAS would potentially decrease, due to the fact that any firms in the country that use (i.e. for transport, productoin etc...) would experience a rise in costs, and so there would be a general rise in the costs of production of most firms in the country, leading to a leftwards shift of SRAS.

    Honestly, I am not certain about my logic (hopefully someone comes into correct me if I am talking nonsense lol), but I hope that helps (if its correct).

    EDIT: I didn't even answer your question properly hahahaha. No, there wouldn't be a movement along the AD curve.
    This is a bit confusing question, there is a movement along AD if the price level
    Shifts due to non AD factors. Therefore if the increase in oil process leading to a reduction in SRAS which would lead to an increase in price level, hence leading to a movement ALONG AD curve. However, the increase in oil prices would likely increase X-M so increase in AD. In conclusion would this not indicate a shift and a movement along AD?? Looks like a two ended question ... Correct me if I'm wrong??
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    (Original post by azizadil1998)
    This is a bit confusing question, there is a movement along AD if the price level
    Shifts due to non AD factors. Therefore if the increase in oil process leading to a reduction in SRAS which would lead to an increase in price level, hence leading to a movement ALONG AD curve. However, the increase in oil prices would likely increase X-M so increase in AD. In conclusion would this not indicate a shift and a movement along AD?? Looks like a two ended question ... Correct me if I'm wrong??
    No, I completely see what you mean. Assuming what I said about SRAS shifting is correct, then there would be a movement. That would make thee net exporting part a bit pointless though, but I guess its possible its just a weird question.
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    (Original post by KevinLonge)
    No, I completely see what you mean. Assuming what I said about SRAS shifting is correct, then there would be a movement. That would make thee net exporting part a bit pointless though, but I guess its possible its just a weird question.
    I'm assuming this isn't like an exam question and just something set by the teacher for homework aha
 
 
 
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