AS Model example: Examine the impact of a rise in the price of oil

Using and AS/AD diagram examine the impact of a rise in the price of oil

A increase in the price of oil may cause a rise in the cost of production for many firms across the UK as petrol, energy bills and plastics increase (1m) causing AS to shift LEFT (1m). The consequence of this is some firms may close as they become less profitable causing recession, a two consecutive quarterly fall in Real GDP  (Y1-Y2) (1m) Some firms may pass the increase in costs on to consumers so overall in general there might be a rise in cost push inflationary pressures. (1m)

4 marks diagram

4 marks - explain impact of oil price rise on growth and inflation

4 marks evaluate

However the size of the oil price rise may not be that significant  SIGNIFICANT  (2e) or may not last for long as eventually oil prices fall (TIME)(2e). Also the UK government may do something to help businesses cope with the rise in price for example by not increasing tax on petrol or cutting energy bill taxes on businesses. (2e)