Tuesday, April 10, 2007

Oil and the Macro Economy

In one of his most striking declarations in his 2006 State of the Union address, President Bush said "America is addicted to oil" and set a goal of replacing 75 percent of the nation's Mideast oil imports by 2025 with ethanol and other energy sources. The President promoted the construction of nuclear power plants and renewed a call for the development of alternative fuel for automobiles, including ethanol, which is made from corn, as well as the development of fuel made from the waste of plant crops.

If you are interested in this topic, you might want to check out this CNN special:We Were Warned: Tomorrow's Oil Crisis

I read a lot these days about the topic of peak oil. Matthew Simmons has studied the subject and believes that we have reached a peak in global oil production and will soon see a decline in global oil market. For a fascinating set of interviews with Simmons on peak oil and its potential impact on our economy click here.

Some obvious Discussion Board questions include:
1. How does an increase in oil prices affect aggregate demand and supply, and the price level?
2. Is there evidence that we are near a global oil production peak? If so, what will be the implications for our economy?

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