ESSAY

1. What is the impact of the current oil price shock on ASEAN countries? In
particular:
Most of the time oil is known as an energy used to transport a car,
articulated vehicle, and planes but oil is also used for heating, chemical plant
and other industry. Oil is important since it is a vital spark of the
industrialized nations. Its product reinforce modern society, predominantly
supplying energy to power industry, heat homes and provide fuel for the
means of transportation such as land vehicles and aeroplanes to carry goods
and people all over the world. The COVID-19 outbreak is stirring at a time
when the oil market is already weak and prices are under pressure. The result
of Pandemic was not only concerned by the Public health however it can have
serious effects in particular areas of the economy. Many potential investments
are already shutting down that causes of less construction, less tourism, and
also less people are going out for entertainments and restaurants that is
resulting trouble and concerned by the oil industry. However, the current oil
price upturn has been quite manageable to the development of the ASEAN
countries for the reason that it has generally been determined by increasing
global demand for oil rather than disturbances to supply. Aside from that,
ASEAN Economies are a varied assembly with a couple of specific features
that make them answer back differently to the other countries to an oil price
shock. Thus, if such shock were happen to occur, its effect to the global
economy and subsequently on ASEAN economies, would be theoretically
much larger than the present shock. The oil prices will affect the ASEAN
economies together by way of their impact on the world economic activity,
their exchange and interest rates, and through the direct impacts on ASEAN
prices and incomes. They may well potentially be given a pretty large shock
from an increase in oil prices.

2. What impact do the rising oil prices have in the short and long terms?
Oil prices increases are generally thought to increase inflation and
reduce economic growth. One of the reason why oil prices goes up is that
 global demand for oil has been increasing, outstripping any advances in oil
production and excess capacity. There are some factors that affecting the
rising oil price to both short and long term. A significant body of economic
literature indicates the opposing economic impacts of oil-price shocks for the
developed economies. The short-term impact, namely output decrease made
by the cut in capacity or the utilization rate. However, the long-term impact,
defined as the effect realized through an investment change, increase
gradually and exceeds that of short-term impact. To farther details, if world
short and long interest rates are rising, with an increase in oil prices, then
long-term borrowing costs will rise. If this takes place, then the effects on the
activity will be larger and there will be less need to tighten monetary policy.
In addition, the time that policymakers preserved the economic shocks caused
by rising oil prices also may have played a role in the impact of the shocks on
economic growth and the inflation rate. Thus, oil price increases can also
suppress the development of the economy through their effect on the supply
and demand. Furthermore, increases in oil prices can depress the supply of
other goods for the reason that they increase the costs of producing them.

3. What are the key transmission mechanisms of an oil price shock to ASEAN
economies and what are the direct and indirect effects? Secondly
ASEAN economies are remarkably sensitive to oil price shocks. They
compose the impacts on two ways through the world trade and interest rates
and through the direct impact to their import and export prices. An upturn in
global oil price can be either compelled by increased global demand, or by
supply side distraction. The following are some of the key transmission
mechanism of an oil price to ASEAN economies. Supply-side shock effect –
From this perspective oil is described as an input of production process.
When oil price increases it automatically affects the output through the rising
production costs. Consequently, a lower productivity decreases the total
output and increases the unemployment. This transmission process scenario
is typical for an oil-importing country. For an oil-exporting economy higher
revenues as a result of the oil price shocks can contribute the increases in
investment opportunities, which will boost the output and decrease the
 unemployment. Wealth transfer effect – This transmission channel explains
how the income is transferred from an oil-importing economy to an oil-
exporting economy after the oil price shock occurred. As a result, the
consumer demand is decreased in oil-importing economy and increased in
oil-exporting economy. Inflation effect – Oil price shocks also trigger the
inflation in economy. As it was mentioned, oil price shocks increase the costs
of production, which is considered as a price shock as a consequence. Real
balance effect – Through this transmission channel, an oil price shock impacts
money demand. As an example, consumers tend to borrow and not to save, it
increases the interest rates and decreases the demand for cash. Sector
adjustment effect – When an oil price shock happens, the cost of adjusting to
these changes in each sector of an economy can be a reason for a slowdown.
As a result, energy intensive sectors should be diminished and energy-
efficient sectors should be expanded. The unexpected (uncertainty) effect –
The investment demand of both consumers and producers is affected through
the uncertainty channel of an oil price shock. The future investment plans can
be postponed if people do not know if the oil prices will go up or down. To
sum up, the disclosure to the world trade transmission channel of an oil price
shock, contrasts with that of the main advanced country.

4. What are the appropriate fiscal and monetary policy responses to that shock?
For example: How have policies reacted in the past and how effective have the
responses been?
Most of countries now have their established independent central
banks with overt inflation targets where the banks and react rapidly to
fluctuations in the price increases outlook. There are also countries that are
fluctuating rates with highly mature financial sector, and those with fixed
rated and under developed financial sectors. The course of action response to
an oil price shock rest on how that shock effect on the economy. The
important of having the best possible policy response is in anticipating how
rising oil prices will impact on the price increases and activity, both in the
short and medium terms and adjusting policy accordingly. Though assessing
the probable impacts of shifting oil prices can be complex. There is a wide
variety of economic structures across ASEAN. Furthermore, the structures of
 individual countries are evolving rapidly over time. Accordingly, there are no
simple rules that can be applied in response to an oil price shock, either across
countries, or over time.
Therefore, monetary policy will need to be tighten up in response to the
higher inflation produced by a shock. Nevertheless, the point to which it is
tightened, or whether it is tightened at all, depends on the impacts on activity
relative to those on inflation. The larger the decreased of activity relative to
inflation, the lesser the need for a monetary response. However, whether an
increase in global oil prices leads to a large or a small impact on activity
depends on a wide variety of factors. Hence, while the policy decision if the
future is known is relatively simple, estimating the impact of any oil price
shock on the outlook is irreducibly complex. It depends on the ability to
understand the transmission mechanisms and to forecast the effects that any
individual shock will have. Thus, this section concentrates on outlining the
general transmission mechanisms of an oil price shock to ASEAN economies.
Through higher world demand, then the impacts will be more through the
direct channels.
5. How should monetary and fiscal policies in ASEAN economies best respond to
these oil price fluctuations and a sustained increase in oil prices?
Mostly of the ASEAN economies are ordinarily sensitive to oil price
shocks. They feel the impacts two ways: via the impact on world trade and
interest rates, and via the direct impact on their oil import and export prices.
One thing that ASEAN economies have in common is that they are all trading
economies with high trade and export shares. Moreover, as small open
economies with high levels of investment they are also sensitive to the
impacts of oil prices on financial markets on financial flows, interest rates and
exchange rates. An increase in global oil prices can be either driven by
increased global demand, or by supply side disruption. Whether the shock
comes from the supply side or the demand side has important implications
for the global effects. If it is due to supply side disruption, it is more likely to
lead to slower world growth, higher interest rates, and disruption to world
trade and financial markets. The impacts on ASEAN economies would be felt
more through the trade and financial channels. If the origin of the shock is
 through higher world demand, then the impacts will be more through the
direct channels.

SELF-EVALUATION
Usually Sometimes Seldom Never
3 2 1 0
I am able to grasp that when economic
growth begins to slow, demand eases
and the supply of goods increases 
relative to demand.

I avoid confusing that heating oil

prices also rise, hurting both 
consumers and businesses.

I learn the Moderate inflation is

associated with economic growth,
while high inflation can signal an 
overheated economy.

I understand that the Inflation-linked

bonds issued by many governments are
explicitly tied to changes in inflation. 

I learn that the Many commodity-

related assets can also help cushion a
portfolio against the impact of inflation
because their total returns usually rise 
in an inflationary environment.

I also learned that oil, rising wages can

also cause cost-push inflation, as can
depreciation in a country’s currency. 

TOTAL 12 4 0 0

MONETARY POLICY AND FISCAL POLICY

Topic: Module 5- Develop appropriate values like consideration and understanding during
the time of inflation
Student Name: SANDRINI M. SALINAS

Purpose: Student monitors their learning through reflection prompts. The log documents
growth and learning overtime in the student’s words. The log is used as feedback on the
topics being discussed and student learning on the subject matter.
Instruction: Log in your reflections on the spaces provided following the prompts. Submit a
copy as a formative evaluation and retain a copy for you to compile as partial requirement of
the course.

Reflection Prompts Reflection Logs Remarks/Suggestions

1. In this topic, I In this topic, I learned that
learned the Moderate inflation is
that………… associated with economic
growth, while high inflation
can signal an overheated
economy. Also, I understand
that the Inflation-linked
bonds issued by many
governments are explicitly
tied to changes in inflation.
2. The most useful The most useful thing in this
thing in this topic topic was it gives an
was………………….. additional learning and
realization to me towards the
effect of inflation and also to
absorb new learning’s about
the certain economic issues.
3. The main thing I The main thing I want to
want to find out find out more about is if
more about inflation also gives a
is……………………. positive effect in the
country’s economy and in
what aspect if ever there is a
positive influence.
4. I might have learned I might have learned more
more from this from this lesson if it was
lesson if…………… discussed thoroughly.
5. One thing when I One thing when I am not
am not sure about. sure about are if I
thoroughly or fully grasp the
whole lesson based on what
should it be mean especially
when it was just my own
understanding/ self-learning.
POTENTIAL ANALYSIS AND DECISION MAKING
Identify Economic Problems encountered in our country during Pandemic

Potential Seriousness Causes Effect Preventive Contingent Responsible Time Frame

Problems High, Measures Action
Medium,
Low
*Shortages of *Social * Advisory was *Department of
health/medical Distancing issued Health
facilities and Measures implementing the *Individuals
equipments *Community thermal scanning *Any different Until following
*Shortage in quarantine of all students, large and small years or until
medical budget *Swab testing employees, service institutions. further notice
1 Health Crisis High Huge numbers *Few medical *Unless providers, and *Government depending on
of infected practitioners necessary avoid guests at entry the situation and
people *Numbers of travels points the approval for
medical *No mass *Suspension and vaccinations.
practitioners are gathering Limitation of
infected or die in *Mandatory International
the field due to wearing of Travel
the virus facemasks *Face to Face
outside the classes and works
homes will be done
*All government through online
offices, law
enforcement
agencies and
local government
units (LGUs)
directed to
mobilize all
necessary
resources to
 curtail and
eliminate the
spread of
COVID-19
*Additional
police and
military troops
will also be
deployed to
monitor
checkpoints and
points of
convergence like
public markets to
ensure that social
distancing rules
are observed.
*Slowdown in *Bangko Sentral
the increase of ng Pilipinas (BSP) Until following
prices of food *Inflation rate *Philippine years or until
and non- slowed down Statistics further notice
alcoholic despite the Authority depending on
beverages, as pandemic the situation and
well as the the approval for
prices of vaccination.
transport,
2 Inflations Low housing, water,
electricity, gas
and other fuels
that also pulled
inflation to their
levels."
*The “stay-at- *Forcing *Department *Work-from-Home *Philippine
 home orders” or businesses to Order No. 209 – arrangements Statistics
the levels of resort layoffs to Providing *Virtual or online Authority
community stay afloat or due Guidelines on works *Government
quarantine to bankruptcy the Adjustment *Huge and small
imposed *The people or Measures institutions or
3 Unemployment High measure to employees Program For the companies
contain the virus couldn’t receive Affected *Department of
and generate Workers due to Labor and
income Corona Virus. Employment
*Labor Advisory
No. 09-20 -
Providing
Guidelines on
the
Implementation
of Flexible Work Until following
Arrangement As years or until
Remedial further notice
Measure due to depending on
the On-going the situation and
Outbreak of the approval for
Corona Virus vaccinations.
2019 (COVID-
19) issued on 4
March 2020.
*Labor Advisory
No. 13 Series of
2020 – Payment
of Wages for
Regular
Holidays on
April 9, And 10,
2020 and Special
Holiday on April
 11, 2020. Issued
March 30, 2020.
*And many
more
employment
measures under
Labor Advisories
Until following
*Trade *Affecting the *Trade *Slowly opening *Department of years or until
4 Trade losses Medium drastically drop importation and restrictions up and accepting Trade and further notice
during the exportation of products and good Industry depending on
lockdown/pande domestic goods importation with the situation and
mic and products proper health the approval for
certificate or vaccinations.
medical approvals.
*Travel *Tourism *Department of *Department of
Restrictions Industry declines Trade encourage Tourism
*Closure of *Loses of over tourism *Businesses Until following
businesses 50% of 2020 enterprises to involves in years or until
*Temporarily revenues adopt the tourism further notice
closed of well- following: Ask 3 depending on
knowned tourist questions the situation and
5 Tourism Halts High spots in the indicated in the approval for
country DOH Decision vaccinations.
Table, and apply
the DOH
protocols of
proper health
and food
sanitation and
the public health
ordinance
*Food *Suspicions in *Department of *Department of *Department of Until following
 manufacturers food production Health release a Health and Agriculture years depending
6 Food Security Low and Suppliers *People are statements and Department of *Department of on the situation
health afraid of the food ensure the public Agriculture ensure Health and the approval
precautions security being that the virus the public of the *Local for vaccinations.
released in the can’t affect the proper safety Government Units
market especially food. precaution in food
those being production in the
exports or country.
imports from
other places
*People are
suspicious in the
food safety of the
relief goods
being released
from other places
*Weak public *Loans Until following
healthcare *Shortages of years or until
7 Public debt High system public budget for further notice
(debt-to-GDP *Huge numbers the needs of the depending on
ratio) of death and people as well as the situation and
cases of infected in medical needs the approval for
in the country and many more vaccinations.
affecting sources.
*Travel *Importation and *Put alternative *Use digital *National Until following
Restrictions Exportation rate business process technology and Economic and years or until
*Lockdowns in drastically drop. *Responsive to innovative Development further notice
different *Surplus of the changes in approaches to Authority depending on
8 Import and High graphical areas goods that are consumer continue operation *Department of the situation and
Exports *Medical/ health long stacks spending and secure new Trade and the approval for
approvals before causing for losses *Redesign markets Industry vaccinations.
transportation and waste of product lines
*Travelling pass products or accordingly
 from one places goods.
to another
*No work due to *People depend *The * The proposed *Department of Until following
the pandemic or on the government has HEAL will Social Welfare years or until
the “stay-at- Government’s social protection strengthen the and Development further notice
home order” support and of programs in Philippines’ health (DSWD) depending on
9 Poverty Medium *There are no released place such as the system and its *Government the situation and
proper or stable subsidies Emergency capacity to halt the institutions the approval for
ways to generate *ESP’s lead Subsidy spread of COVID- vaccinations.
income implementer has Program(ESP) 19 by increasing
met criticisms and the Small access to quality
Business Wage health services and
Subsidies treatment including
(SBWS) the poor and
vulnerable groups.
ADB will continue
its efforts to
support PHIC to
expand the health
insurance coverage
particularly of the
poor and
disadvantaged
groups.
*A food security * The disruption *The *Government *Government Until following
and nutrition in achieving the administration is increase its efforts Institutions years or until
10 Hunger Medium crisis of historic objectives of the fully committed and address the *Department of further notice
proportions. 2030 Agenda for to ensuring food necessary Agriculture depending on
Sustainable security and legislative/policy *Food Security the situation and
Development addressing measures that will and Nutrition in the approval for
Goals (SDGs), hunger through further facilitate a the Philippines vaccinations.
more particularly programs. more vibrant *Food and
that which * food/agricultural Agriculture
pertains to SDG sector as it is not Organization
2 - hunger. only indispensable
*Lose access to in preventing
basic food and stunting and
nutrition malnutrition
among children but
is equally vital in
managing a
pandemic; more
importantly in
feeding the
population of the
country
sustainably.
 REFLECT ON YOUR PERFORMANCE
What were your misconceptions about the What new or additional learning have you
had after taking up this lesson in terms of
topic prior to taking up this lesson?
skills, content and attitude?
I thought this topic would focus only on the I learned that inflation are consist of two
negative effects of inflation although there different types the cost-push inflation and
are such things involve, but as I go further demand-pull inflation. In further, it gives me
the topic eventually revolves more than that, visualization about the total impact of
where it tackles into huge and wide aspects inflation not just in the Philippines but
of the certain economic issue. I also thought throughout the world. I also, learned the
that inflation is a general and independent economic inflation is not a total disruption
situation which has no innate different types for a certain economy but it can be a help
used to elaborate a certain economic also on the economic growth it just that it
condition, where it is predictable and there needs a matter of stabilization enable to make
are no certain bases to predict its it as an helpful ways to expand and improve
occurrences, but I got things wrong. Because the economic growth of a country.
as I go further in reading and understanding Additionally, I have learned also how
the topic, I can now be able to see the whole inflation is measured, whereas through the
point or the mean of the topic. It introduces Consumer Price Index (CPI), as well as what
me into the real deal about the inflation, causes of inflation and its functionality or
where inflations are not just a mere economic effect if it does not balance accordingly. Next
problem that occurs but it can be also a help is how can inflation being controlled, where I
in dealing improvement in economic growth. learned that it’s through raising and lowering
Additionally, understanding the areas of the short-term interest rates, the effect of
effect of the inflation to the investment inflation on the investment returns and the
returns and the help to protect the fix income help to protect the fix income portfolio from
portfolio from inflation is a big help for me inflation that practically catches my attention,
as a student that taking up a capital market because as I have observe on the stock
subjects where it involves understanding the markets the companies are selling their
market movement and the ways to maintain a stocks in low prices which actively grab by
fixed income portfolio is a great help to take large investors when this particular economic
a glimpse on how to protect my certain problems occurs with the help of this topic I
portfolio if this sudden inflation occurs. could be able to take a glimpse and
Therefore, those misconceptions I have in understands the ways or the effective
this certain topic are replaced with pure
relatedness in regards to the realization of measures when inflation occurs.
what is inflation all about.