How does the article "Oil and the Markets: Black Gold Friday" in economist.com  relate to Says law, the Great Depression, Keynes and squaring the circle (Art Buchwald) as macroeconomic perspective.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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The article that you are asking about talks about the drop in the price of oil on November 27, 2014.  It discusses why this decline happened and what its effects might be.  Let us look at what it says in relation to the things that you are asking about.

  • Say’s Law.  Say’s Law essentially says that supply creates its own demand.  This is a very conservative idea that is in line with classical economic thinking.  More liberal economists sometimes talk about the idea that there can be overproduction in an economy.  Say’s Law argues that this cannot be true.  It says that whenever goods are produced, there will be demand for them.  This relates to the article because the article says that the price of oil dropped because OPEC did not cut production.  That implies that people think that there is too much oil being produced worldwide.  Say’s Law says that there cannot be too much oil being produced because any oil that is produced will automatically create its own demand.
  • Many people think that the Great Depression was caused by oversupply.  They think that companies made more goods than consumers could buy.  This made it so the companies had to stop producing and therefore lay off their workers.  This may be related to the article in that declines in the price of oil could cause companies to stop producing it (for example, the article says that fracking may no longer be profitable).  This would force them to lay off workers and could increase unemployment (though surely not as much as in the Depression).
  • John Maynard Keynes believed that economies would grow if there was more aggregate demand.  He wanted governments to stimulate demand so that their economies would grow.  The article says that aggregate demand should grow if the price of oil drops.  It should grow because people will have more money to spend and will therefore demand more things.  Keynes would say that this should make economies grow.
  • Art Buchwald’s piece tells the story of ripple effects in the economy.  When one person decides not to buy a car, it causes various other people to have to lay off workers.  The ripples eventually come back and hurt the person who didn’t buy the car.  This could be related to the article because we can say that the drop in the price of oil might cause ripple effects.  If the countries that sell oil are harmed economically, it could hurt the global economy.  If that happens, our own economy might be harmed as well.
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