Oil And Gas How Both Affect The Economy Essays - Economy, Economics

Oil And Gas: How Both Affect The Economy The economy is affected by many factors that determine if it is strong or weak. These factors have to do with buyers consuming goods and services and at what rate they do this. Do the goods and services that are consumed by people created wealth, jobs and a better overall economy for a country. Throughout history some economies have evolved faster and stronger than others. Policies that the government places on industry, technology and the environment can all affect the prosperity of an economy. Of the factors that affect economic growth the industry of Oil and gas is one that holds a stronghold in the world's and America's economy today. When evaluating the economic growth factor of economy and specifically oil and gas on must consider the following questions: ? What relationship does the factor have with the whole economy? ? How does this factor affect economic growth ? Is the factor a cause or effect of economic growth? ? what would the economy be like if there were significant problems with this factor? ? What relation does a central bank have to this factor? I will answer each of these questions in respect to how economy is affected by oil and gas. The economy in the United States today is greatly affected by oil and gas. When there are large reserves and an increase of active drills in respect to oil, the economy seems to receive a boost. This is because prices for such things like gas and oil fall and people are able to consume more gas at a lower price. There is more supply and prices fall, therefore people save money on gas and can consume other items in the economy. People working in these industries have more job openings and more jobs filled, therefore creating a lower unemployment rate and a higher national per capita income. The need for substitutes are not there so, consumers will consume oil and gas at a growing rate. Since, people use oil and gas for so many different things like heating there homes, driving their cars, and a variety of other sources, the overall GNP for the consumer will rise. Economic growth is affected through significant fluctuations in inflation of oil and gas. If you look throughout history when there have been fluctuations in gas and oil prices you have vast fluctuations in the economy of our country. The instability of this factor has cause government regulation to come into play in times of crisis. For example during the mid-seventies we had the oil and gas shortage due to the Middle East cutting off supply to Importers of their oil. By doing this, they caused a shortage in a lot of countries creating rising oil prices and high demand. Consumers could not rely on the oil prices to be stable, therefore they consumed less of other products due to the inflation of gas prices and more of their dollar began to be spent on gas. Americans particularly started to come up with more efficient means of using and consuming gas over the past 25 years. Oil and gas is a resource that can be used up if not conserved properly. That is why OPEC was formed, as well a s organizations such as NAFTA to help regulate trade of these commodities and bring organization to a disorganized status. In addition, governments like the United States impose taxes on gas to regulated the prices in order to ward off against supplies of oil affecting the nations economy. This only works to an extent, in the early to mid-eighties one state's economy lived and died by the supply of oil. That state was Texas. When Texas's oil rigs began to dry up, their economy went into a recession. Their reliance on the oil supply as their main revenue producer caused a lot of people to lose their jobs and demand and consumption for other products fell as well. This caused a spiraling effect which caused people from all industries to lose their jobs. Texas's economy suffered and so did parts of the American economy with High inflation and high debt which caused the economy to suffer. Increased regulation and diversification of a country's