Question: The news recently reported that the US is reinstating economic sanctions against Iran, the third largest oil producer in the world. This will likely lead to a reduction in the supply of crude oil in the global market and an increase in crude oil prices.
• Since oil and gas prices are likely to rise in the US and elsewhere, use the concepts of aggregate demand (AD) and aggregate supply (AS) to explain why this may be bad news for consumers.
• What impact does rising oil prices have on inflation?
• Is there a upside to higher oil prices? Who are the winners and losers in the economy?