Next year's expected price of oil is $90 per barrel. If the interest rate climbs from 5 per cent to 20 per cent per year and nothing else changes, then, according to the Hotelling Principle, the price of oil this year
A) will rise.
B) could rise, fall or stay the same.
C) will not change.
D) will fall.

Question

Quizplus · Accepted Answer

According to the Hotelling Principle, the price of a non-renewable resource like oil should rise at the rate of interest. If the interest rate increases, the current price should decrease to ensure that the expected price rise matches the higher interest rate.

Next Year's Expected Price of Oil Is $90 Per Barrel