Effect of a Permanent Increase in Oil Price on Inflation and Output

Effect of a Permanent Increase in Oil Price on Inflation and Output Introduction This paper presents a detailed discussion on the effects of increase in the prices of oil both in the short run and long run period of time. The risk to growth following a progressive increase in the price of oil will be conclusively discussed both in the short run and long run period. As a response measure to the increase in the price of oil, monetary policy formulated by the Federal Reserve Bank is worth investigating and making inferences.Advertising We will write a custom essay sample on Effect of a Permanent Increase in Oil Price on Inflation and Output specifically for you for only $16.05 $11/page Learn More The threat to growth following rising price of oil In the early 70s, decrease in the output and rising inflation rates lead to sharp rise in the price of oil. Even In the year 2007, much more rise in the price of oil was associated with fluctuation in the outputs and inflation rates[1]. During the same year, the alterations in the pric e of oil were activated by a change in the supply of the same commodity in the market place. War between the Arab and Israel prompted the formulation of an oil embargo consequently reducing the supply of oil in the market place in 1973. Another factor sourced from the supply side was the consequences of the Iranian revolution in the year 1979[2]. On the other hand emerging economies of china and Japan are the recent cause of the rise in the price of oil. Rapid economic growth and development taking place in these nations creates demand for oil to be used in various sectors of the economy. In recognition of the fact that developing nations are considering trading with up coming economies, expenditures on the products from the United States reduce to a greater extent. Use of AD-AS model This is a model relating the price with the level of production in an economy with reference to employment rates, gross domestic produce policies to stabilize inflation rates, an ultimately macroeconom ic observable fact. The AS-AD model takes into custody the interface between the Aggregate Demand (buyer) and the Aggregate Supply who in this case are the sellers both analyzed in the long and short run period of time[3]. In a macroeconomic context, aggregate demand is specified by a sum total of C+I+ G+ (X-M) in an open economy. Effect of a rise in oil price on inflation and output The graph below shows the effect of a rise in oil price on inflation and output. An inward shift in SRAS following a rise in the price of crude oil imparts on the price level causing a contraction of the AD signified by a movement from Y1 to Y2. Y f c represents full employment of factors of production in the long run. It is now evident that continuous increase in the price of oil reduces output level and raise inflation from P1 to P2. Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Effect of the res ponse of Reserve Bank to the oil price increase The reserve bank can manipulate the interest rates to stimulate growth by creating demand in the economy. Low interest rates attract people to borrow from financial institution consequently raising their purchasing power. Recessions are related with the surging prices of oil and the increase in the rates of funds from the Federal Reserve Bank. It is important to focus on some economic effect of the prices of oil and the federal funds rate. An empirical approach tries to analyze the decline in output from an increase in the price of oil. In an investigation by economic researchers, the findings were that an increase in the prices of oil and a subsequent increase in the funds rate by the Federal Reserve Bank would have a cumulative effect of lowering the gross domestic product. In the year 2004, there was a 30% increase in the price of oil from $33 to $ 45 per barrel. The immediate reaction was maintaining the funds rates at a constant v alue which ultimately reduced the growth rate by only 1.2%. If the funds rates had been increased (in the form of tightening the lending rates), then prediction shows that development would have declined by 2.1%. The investigation shows a clear difference in the effect of an increase in the funds rates and when the rate is maintained at a constant value. Federal Reserve Bank is usually responsible for the changes in the interest rates which affect the supply of money in the market. A higher interest rate acts as a disincentive to borrowing money from the bank. The succeeding consequence is little money chasing the same product. On the other hand, a decrease in the interest rates motivates people to borrow more funds from the bank therefore increasing the supply of money in the market[4]. This means that more money chasing the same product. Because of the competition for the same product, it is possible that growth in national income will be registered but at a higher cost of inflati on as indicated in the graphical diagram above. The use of monetary instrument to influence growth in an economy by a decrease or increase in the interest rates is strictly under the control of Federal Reserve Bank. Conclusion This essay is explicit on the effect of high prices of oil on output and inflation rates. Exogenous variables are responsible for the shift in the AD or AS curve in the short run. The long run graphical illustration of a supply curve is a straight vertical curve. This shows that in the long run, the supply curve is not affected by exogenous variable in the industry. To regulate the supply of money in the market, monetary policy is employed by the Federal Reserve Bank. For a progressive increase in the price of oil, the model clearly substantiates the value attached to maintaining the interest rates at a constant rate.Advertising We will write a custom essay sample on Effect of a Permanent Increase in Oil Price on Inflation and Output specifically for y ou for only $16.05 $11/page Learn More Reference List Bernanke, S, M Gertler M Watson, Oil Shocks and Aggregate Macroeconomic Behavior: The Role of Monetary Policy: A Reply, Journal of Money, Credit, and Banking, vol. 36, no. 2, 2004, 287-91. Olekalns, N, et al, Principles of Macroeconomics, 8th edition, McGraw-Hill, North Ryde, N.S.W, 2008. Footnotes Olekalns, N. et al, Principles of Macroeconomics, 8th edition, McGraw-Hill, North Ryde, N.S.W, 2008. Olekalns, N. et al, Principles of Macroeconomics, 8th edition, McGraw-Hill, North Ryde, N.S.W, 2008. Bernanke, S, M Gertler M Watson, Oil Shocks and Aggregate Macroeconomic Beha Policy: A Reply, Journal of Money, Credit, and Banking, vol. 36, no. 2, 2004, 287-91. Bernanke, S, M Gertler M Watson, Oil Shocks and Aggregate Macroeconomic Behavior: The Role of Monetary Policy: A Reply, Journal of Money, Credit, and Banking, vol. 36, no. 2, 2004, 287-91.

Luminol Chemiluminescence Test for Blood

Luminol Chemiluminescence Test for Blood The luminol chemiluminescence reaction is responsible for the glow of lightsticks. The reaction is used by criminalists to detect traces of blood at crime scenes. In this test, luminol powder (C8H7O3N3) is mixed with hydrogen peroxide (H2O2) and a hydroxide (e.g., KOH) in a spray bottle. The luminol solution is sprayed where blood might be found. The iron from the hemoglobin in the blood serves as a catalyst for the chemiluminescence reaction that causes luminol to glow, so a blue glow is produced when the solution is sprayed where there is blood. Only a tiny amount of iron is required to catalyze the reaction. The blue glow lasts for about 30 seconds before it fades, which is enough time to take photographs of the areas so they can be investigated more thoroughly. Heres how you can detect blood yourself or demonstrate how to do it: Luminol Materials luminol stock solution (2 g luminol 15 g potassium hydroxide 250 mL water)3% hydrogen peroxide in water (common over-the-counter concentration)potassium ferricyanide or a sterile blood lancet and sterile alcohol pad Performing the Test or Demonstration In a clear test tube or cup, mix 10 ml of the luminol solution and 10 ml of the peroxide solution.You can activate the glow either by adding ~0.1 g of potassium ferricyanide to the solution or with a drop of blood. The blood must be on the alcohol pad. The forensic test is for dried or latent blood, so the reaction between the alcohol and fresh blood is necessary. Notes About the Luminol Test In addition to iron and iron compounds, other substances can catalyze the luminol reaction. Copper and its compounds, horseradish, and bleach also cause the solution to glow. So, you could substitute any of these materials for the drop of blood or potassium ferricyanide in the demonstration. Similarly, the presence of these chemicals at a crime scene affects testing for blood. If a crime scene was washed in bleach, for example, the whole area would glow when sprayed with luminol, making it necessary to use a different test to find traces of blood.If you are doing the reaction as a chemiluminescence demonstration, you can kick the display up a notch by dissolving the potassium ferricyanide in the peroxide solution and using a fractionating column or glass spiral to react the solutions rather than a test tube. You could pour a small amount of fluorescein in the bottom of a flask, pour the potassium ferricyanide solution through the spiral into the flask, and (in a darkened room) finish by adding the luminol solution. The spiral will glow blue as it passes through the column, but the glow will change to bright green once the luminol touches the fluorescein in the flask. Dont drink the luminol solution. Dont get it on your skin or in your eyes. If you prepare a spray bottle of luminol solution to check for traces of blood, keep in mind the solution might be damaging to some surfaces. Thats not a big factor at a crime scene, but its something to keep in mind at home or in class. Dont spray upholstery or clothing or people.The quantities of chemicals yield a super-bright demonstration, but you  can use much less luminol (~50 mg) and still achieve enough luminescence for a demonstration or for crime work. How the Luminol Test Works The iron in the hemoglobin found in blood catalyzes an oxidation reaction in which the luminol gains oxygen atoms while losing nitrogen and hydrogen. This produces a compound called 3-aminophthalate. The electrons in the 3-aminophthalate are in an excited state. Blue light is emitted as energy is released when the electrons return to the ground state. Learn More The luminol test is only one method used to detect blood. The Kastle-Meyer test is a chemical test used to detect extremely small quantities of blood. If you have leftover potassium ferricyanide, you can use it to grow naturally red crystals. Although the chemical name sounds scary, with the cyanide word in it, its actually a very safe chemical to use.