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 as 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 resources can stop this from being the case.
Countries representing OPEC all live and die by the constant production of oil.
While this factor is used to stimulate their countries economic growth, it
should be used to stimulate the building of a country's infrastructure. Oil-rich
countries should use the positive affect oil has had on their countries to build
strong governments and consumer demand for other goods. This powerful
infrastructure that could be built will give the economy stability and allow for
a country's GNP to grow in a slow, steady, and positive way. The building of a
strong middle-class will allow for country's to prosper for many years to come.
Instead what has happened is that economies of these countries are in a state of
flux. What I mean by this is that their economies are very unpredictable and
unstable and their reliance on oil has made the disparity between the rich and
the poor a gap that becomes too large to overcome. One prime example of this is
Brazil, Brazil has large reserves of oil in a very large country. Brazil is a
developing nation and is very unstable when it comes to central governments. In
the 70's and 80's Brazil made large amounts of oil from its reserves. Instead of
investing the money made (from exporting oil) into their countries future, the
leaders of that country used the money to make themselves rich and left the
country in political and economic disarray. The middle class of Brazil became
almost non-existent and their seem to be but two classes in that country. Those
classes were the extremely rich and the extremely poor. The lack of
infrastructure and consumer confidence in the economy due to the mishandling of
oil profits lead to many political assassinations and increased crime rates
throughout the country. It has taken and will continue to take Brazil years and
years to recover from these economic crisis's , which all could have been
avoided had Brazil's government invested in its future. It is definitely true
that an economy of a country can be vastly affected by the demand, consumption,
and supply of oil. The affect that good supplies of oil has on a country's
economy is one that can only be measured in the sense that it is inevitable that
they will be affected. As long as we drive cars that are fueled by gas and we
use heat in the winter time, oil will always be a strong factor in determining
the growth of a countries economy. In the United States, we have the strong
infrastructure to adapt to problems that the instability of both the supply and
demand of oil will cause. Countries need to look within themselves for managed
growth in order to steady their economies if oil is what sparks their economy. A
strong central bank and government will allow for funds to be invested in
supporting the economy, the oil business, and consumerism. Once the
infrastructure is set the shear reliance on oil will not be a factor, because
the country's economy will be able to handle the affect. When the day comes that
oil wells ran dry and substitutes are needed the countries that will survive
will be the ones that have braced themselves for the effect that this will have
on their economy. Then these countries will adapt and overcome. Oil and gas
should be used as helper of a country's economy and not the passion by which it
is run. The production of great income for a country and a higher GNP that oil
production is something that should be able to benefit them for many years to
come. If you look at the United States as a model you will see a country that
handles oil with precision. When the oil industry is in a downturn, the
government can step in and regulate taxes and stimulate investment by having the
central bank pump in funds that would not otherwise be used. When the oil
industry is doing fine, the government can sit back and reap the prosperity of
increases in employment and a rise in demand for oil. The prices will be lower
for gas and oil, which means consumption will be up and the economy will be up
too. Countries around the world can learn how to handle oil to the extent that
it creates an agenda that the benefits far outweigh the costs. We know that oil
and gas affects the economy and that it easily regulated by strong central
government and bank. The infrastructure must be built up to manage growth. The
leaders of the country should be committed to the development of the oil
industry. Finally the consumers should be aware of how their role in the
consumption of oil will affect the economy as a whole. When all parties are
aware and committed to the prosperity of their country and to the industry then
the consumption, supply, demand, profits, losses, and investment towards oil
will be a mutually beneficial one for the country and it's people.