Part 1: The Short and Long-Term Effects
A rise in the cost of energy has critical implications for economic performance. Accordingly, incurring high energy costs and using fewer influences both the demand for and supply of goods and services in the economy. Nonetheless, the influences on demand have a more significant influence on the Gross Domestic Product in the short run. Reduced oil consumption may only result in a small direct influence on production, considering that energy costs account for a small share of the inputs to production (Mankiw, 2018). Bauslaugh et al. (2017) stated that the consequences on demand and the subsequent, direct influences on production- could be more significant since increasing spending on petroleum imports lowers US-produced products and services.
Despite the reported potentially significant effects, it is reported that the demand for products and services produced in the United States has held up effectively over the years. According to Sherman et al. (2018), the increase in energy prices may significantly slow the growth of household income while increasing the spending on petroleum imports. However, consumer spending on non-energy products and services may remain high since household savings are likely to decline. Overall, business spending on new investments and corporate profits are likely to decline in the short run but stabilize in the future because of government policy responses to a suppressed economy.
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A rise in the cost of oil may also affect employment, both in the short and long run. The scenario may reduce the economy’s ability to create new job positions for the population in the short run. The case study of rising oil prices is comparable to cost-push inflation, where the economy’s ability to create new opportunities for the population is suppressed by the need to manage the costs of the inputs of producing products and services. However, the scenario could reverse in the future because of government interventions using both macro and microeconomic strategies.
Part 2: the Bata Case Study
A rise in energy cost is also likely to affect non-energy companies, such as Bata Corporation. Accordingly, Bata’s ability to create new jobs in the short run may impede the suppressed economic performance. Therefore, it may be advisable to contract the workforce as an immediate response to the changing performance (Mankiw et al., 2017). Retrenching the workforce is reported as one of the methods of cutting down corporate expenses. Consequently, most companies use the strategy to handle challenging financial performance.
However, primarily because it operates in a non-energy sector, consumer spending may normalize because of their reduced saving rate. As a result, the company may likely realize a rise in the demand for its products, prompting a responsive strategy, increasing the need for an expanded workforce. As per Mankiw et al. (2017), failing to revert the initial decisions to contract the workforce could impede Bata’s capacity to handle a rise in company demand, hindering its profitability. Furthermore, government policies to revive economic performance could also help companies in both the energy and non-energy sectors normalize their operations.
Conclusively, a rise in the cost of energy is likely to have far-reaching effects on the economy. As discussed, rising oil prices could adversely influence the price levels, job creation, and consumer spending. Companies, such as Bata, are advised to contract their workforces to cut down their expenses in the short run. However, government interventions may revert the condition in the future, enables businesses to create more jobs for the economy.
References
Bauslaugh, B., Chow, P., & Friess, N. (2017). Principles of macroeconomics: An open text by Douglas Curtis and Ian Irvine . New York, NY: Sage.
Mankiw, N. G. (2018). Principles of macroeconomics . Australia, Cengage Learning.
Mankiw, N. G., Kneebone, R. D., & McKenzie, K. J. (2017). Principles of macroeconomics . Vancouver, BC: Langara College.
Sherman, H. J., Meeropol, M. A., & Sherman, P. D. (2018). Principles of macroeconomics: Activist vs. Austerity policies . New York, NY: Routledge.
