Here’s how much oil could go up in a worst-case scenario with the west freezing Russia out, BofA says. It’s a lot

Q1: What are the four phases of business cycle? How does an economy perform at each phase?

A: Peak (Boom), recession (contraction), trough (depression), and expansion (recovery).

Q2: What is investors' economic outlook at the time (Mar 2022)? Explain.

A: The investors expect an economic recession in the future under the Russia-Ukraine war. They expect a 2% decrease in GDP growth in the US.

Q3: How does rising oil price affect output and price level?

A: Since oil is an important factor of production of many goods, for example, producing plastics and generating electricity for factories, an increase in oil price will raise the cost of production. Hence, the short-run aggregate supply will decrease. Price level will increase and the output level will decrease.

Q4: Given the oil crisis, what do you think about the inflation rate in the future? If the change in price level is out of expectation, who will suffer from loss?

A: The inflation rate will increase as the price level increases in the short-run as illustrated in Q3. If there is unexpected inflation, creditors will suffer from loss as the purchasing power of the same money is lower than that at present.