ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -An increase in the price of crude oil means that would increase the cost of producing goods. This price rise would finally be passed on to consumers resulting in inflation. Experts believe that an increase of $10/barrel in crude oil prices could raise inflation by 10 basis points (0.1%).

Detailed explanation-2: -If oil prices fall, production and transportation costs fall, so more can be produced at a given price. Demand then increases or decreases in response to the supply fluctuations.

Detailed explanation-3: -An increase in oil price causes increased unemployment. Reduced oil price uncertainty leads to a decrease in unemployment. A decrease in interest rates results in increased unemployment. Option-implied oil volatility is effective at predicting unemployment rates.

Detailed explanation-4: -The decline in oil prices will lead to significant real income shifts from oil exporters to oil importers, likely resulting in a net positive effect for global activity over the medium term. However, several factors could counteract the global growth and inflation implications of the lower oil prices.