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

In this article, The Economist talks about how the set for a pose of oil has duskped below the fifty dollar mark, resting at $47.36. Though many people would be happy with this, it talks about how this could be cause for appall as a possible indicator for a worsening economy. The main economic concept described in the article would have to be outgo because it ties in with many changes that will occur as an effect of oil prices going depressed.Consumption is basically what it says it is the total spending by consumers of domestic goods and service. some other concept described in this article is that of aggregate demand, mainly because utilisation 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 Policy is touched on in this article since there is a deflation in prices those who control monetary policy cut interest rates.* Consumption Because of the drop in oil and also economists predictions that it will drop even lower, we can probably guess that consumers will save to a greater extent money when they buy gas. With this extra 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 confidence also plays a role in consumption and in particular in this case because, if consumers believe that gas prices will become lower, then they will have a greater chance or spending more on various goods and services.* Aggregate Demand Changes in any of the four determinants of aggregate demand will shift it, making it lower or high depending on which way the determinant shifts. In this case, a graph of aggregate demand would be shifting to the left because price levels are going down as the cost of oil is decreasing.* Monetary Policy Though not discussed to a deep extent in the article, it does say that in response to the price for a barrel of oil dropping 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 bonus 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 military control will shift to the left (AD2). If we increase the price for oil, the exact opposite will occur and the line will shift to the right (AD3). This all comes spur to monetary policy and the article talking about people cutting interest so that it could build up consumer confidence in spending.In ground of completeness of this article, I value The Economist does an overall decent job at explaining what was go ing 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 shortage of oil. I think the article does a good job of assuming that, although we are pursuing renewable energy, oil will be with us for a while longer and that we need to tar up the prices to reduce demand so that we dont have the shortage too soon. In the short term, the lowering of oil prices is immensely expert because it increases the amount of money consumers have to spend on goods and services, and it also increases consumer confidence, making them want to get loans and mortgages.