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What is the effect of high energy costs on the global economy?

Globally Interested:

Hi, Emily. Would you believe that you question is backward?

It is the global economy that has the effect on the price of energy.

A growing economy uses a growing amount of energy. As the demand for energy increases, so does the price.

China and India currently have rapidly growing economies. Their demand for is oil constantly increasing. As their demand increases, along with the demand from other countries, so will the cost of energy.


High energy costs increase the cost of manufacturing and transporting goods.

This increases the price that manufacturers sell their goods. This reduces the desire of people to buy so many goods. Fewer goods are bought so manufacturers produce less. They need less people in their factories. Some people lose their jobs and so have less money to spend on goods - which puts even more pressure on the manufacturers.

At this point the government intervenes by increasing spending which creates government jobs. This solves the problem in the short term, but involves a huge transfer of wealth from energy importing countries to energy exporting countries which is unsustainable in the long run.


High energy costs are directly related to energy demand.


but what is the effect on the global economy.. is the global economy performing where it should be compared to the price of oil?


The global economy should be where the total sum of the invisible hands of many markets dictates it should be. Energy costs are just one of those many hands.

And, besides, everything is relative. Energy costs are not really that high right now....people in the US are willing to pay more for the equivalent of a gallon of bottled water than for a gallon of gasoline.

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