Jeff Leeson
I.B. Comparative Politics and Economics (SL)

Steve Smith

South PM3

January 12th, 2009 (due January 12th, 2009)

Commentary 2

Source: "Down it goes." The Economist. 2 Dec. 2008. 10 Jan. 2009  

                        <http://www.economist.com/finance/displaystory.cfm?story_id=12716182>.

I.B. Syllabus 3.3, 3.4

Word Count: 686

Down it goes

        In this article, The Economist talks about how the price for a barrel of oil has dropped 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 alarm as a possible indicator for a worsening economy. The main economic concept described in the article would have to be consumption because it ties in with many changes that will occur as an effect of oil prices going down. Consumption is basically what it says it is: the total spending by consumers of domestic goods and services. Another concept described in this article is that of aggregate demand, mainly 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 Policy is touched on in this article since there is a deflation in prices those who control monetary policy cut interest rates.

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  • Consumption: Because of the drop in oil and also economist’s predictions that it will drop even lower, we can probably guess that consumers will save more 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 especially in this case because, if consumers believe that gas prices will become lower, then they will have a greater chance or spending more ...

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