Use the FRED database (https://fred.stlouisfed.org/) to find out what happened to the price of oil (WTISPLC) and the New Zealand unemployment rate (LRUNTTTTNZQ156S) in 2022. What does our model of labour market determination predict will happen to the natural unemployment rate when oil prices increase? What is the consequence for inflation given these developments, and why (Be careful to distinguish between the natural and actual unemployment rate)
Use the FRED database (https://fred.stlouisfed.org/) to find out what happened to the
price of oil (WTISPLC) and the New Zealand
(LRUNTTTTNZQ156S) in 2022. What does our model of labour market
determination predict will happen to the natural unemployment rate when oil prices
increase? What is the consequence for inflation given these developments, and why
(Be careful to distinguish between the natural and actual unemployment rate)
An increase in the price of oil can have different effects on the economy. Higher oil prices can increase production costs for many companies, especially those that rely heavily on the energy, transportation and manufacturing sectors.
As production costs rise, some companies may reduce production or delay expansion plans, reducing demand for labor. This can contribute to an increase in natural unemployment.
In addition, an increase in oil prices can also cause inflationary pressure in the economy, which can affect the labor market through changes in nominal wages and (inflation-adjusted) real wages.
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