Question

All Economists agree that the price of gas will rise quickly as the global economy improves. What are the implications for the individual and the U.S. economy?

Answer 1

The increase in the price of gas will have a number of important repercussions on the US economy. Firstly, the increase in gas price would put a strain in consumer budgets and they will be able to purchase less of other commodities. So, aggregate demand would fall. In addition, savings will also fall. Secondly, an Increase in gas price would increase transportation costs and costs of production. As a result, production and aggregate supply would fall. Thirdly, an increase in gas price would result in a higher cost of energy production, which will lower output as well. Therefore, an increase in the gas price would result in a decline in the US economy.