I.B. Comparative Politics and Economics (SL) Essay

In this article, The economist talks about how the price for a barrel of inunct has dropped infra the fifty dollar mark, resting at $47.36. Though many tidy sum would be happy with this, it talks about how this could be cause for alarm as a possible indicator for a worsening economy. The main scotch concept described in the article would begin to be aspiration because it ties in with many swops that pull up stakes occur as an effect of oil prices going down.Consumption is basic ally what it put forwards it is the total spending by consumers of national goods and services. Another concept described in this article is that of aggregate demand, generally because consumption is bound to it. Aggregate demand is the total spending on goods or services in a period of time at a given price. Lastly, Monetary constitution is touched on in this article since there is a deflation in prices those who control monetary polity cut interest rates.* Consumption Because of the drop in oil and excessively economists predictions that it will drop even lower, we faeces believably guess that consumers will save more(prenominal) money when they buy gas. With this unembellished money, incomes change and go up. Income is one of the main factors of consumption because, when it rises, people have more money to spend on other things, which increases aggregate demand. Consumer arrogance also plays a role in consumption and especially in this case because, if consumers believe that gas prices will become lower, past they will have a greater chance or spending more on various goods and services.* Aggregate Demand Changes in any of the quaternary determinants of aggregate demand will shift it, making it lower or higher depending on which way the determinant shifts. In this case, a chart of aggregate demand would be shifting to the left because price levels atomic number 18 going down as the live of oil is decreasing.* Monetary Policy Though not discussed to a deep ext ent in the article, it does say that in response to the price for a barrel of oil move those setting monetary policy have had no hesitation in cutting interest rates dramatically. Theyre probably cutting them do to fears of deflation which would create a greater unemployment due to a decrease in profit. Cutting interest rates would decrease the incentive to save because the cost of borrowing would be lower, this would also increase investment.In this graph you can see that aggregate demand will shift from a change in price level. So, if we make the price level oil and it goes down, then we have our demand for it go up and the aggregate demand wrinkle will shift to the left (AD2). If we increase the price for oil, the exact blow will occur and the line will shift to the right (AD3). This all comes back to monetary policy and the article talking about people cutting interest so that it could build up consumer confidence in spending.In terms of completeness of this article, I think The Economist does an overall decorous job at explaining what was going on and what could come of it but I dont think it really touched on what we should do (or what we are doing) as a country to prevent a dearth of oil. I think the article does a good job of assume that, although we are pursuing renewable energy, oil will be with us for a while longer and that we need to jack up the prices to pull down demand so that we dont have the shortage too soon. In the short term, the lowering of oil prices is immensely beneficial because it increases the mensuration of money consumers have to spend on goods and services, and it also increases consumer confidence, making them motive to get loans and mortgages.