World oil price is rising to the Gulf War level.

Sites to Visit for More Information:

1. OPEC
2. International Petroleum Exchange

Questions:

1. Draw an aggregate supply-aggregate demand graph that shows the initial effect on the UK economy of a rise in the world oil price.
2. What effect does a rise on the world oil price have on aggregate planned expenditure?
3. Does a rise in the world oil price have a multiplier effect on the UK economy? Why or why not?
4. Does the possibility of war in Iraq have a multiplier effect on the UK economy? Explain your answer.
5. What policies would you recommend to the UK government and the Bank of England with respect to the rise in the world oil price?
6. Explain how a rise in the world oil price can have a positive effect on the UK economy.

Chapters: 22, 23, 24, 26

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