Economics Paper - ECO2023 Economics Paper Ryan Wisneski...

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ECO2023 Economics Paper Ryan Wisneski Due: April 20, 2009
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Ryan Wisneski 2 In recent years, gas prices have been increasing to ludicrous amounts that have sent American people into panic with the near unmanageable prices. In recent months, however, prices have dropped back down due to the decrease of oil from $140 per barrel to only $40 per barrel. These price changes, even the drop in prices back down, has caused many problems in the United States economy both directly from the gas prices and indirectly. This vicious cycle of wavering prices has thrown the economy into a tailspin affecting each and every part of the United States people. In the last few years the increase of vehicle fuel has caused the American economy to stumble and the dollar to decrease immensely in value sending the economy into recession. “Since January 2007, while oil prices have nearly doubled, the American dollar’s value has decreased by approximately 12 percent” (Kyl). This caused the Federal Reserve to drop the interest rate a total of 2.25% from January 2007 to March 2008, this was meant to stimulate the United States economy but in turn it also weakened the strength of the dollar. As the dollar weakens the gas prices continually go up because the Organization of the Petroleum Exporting Countries (OPEC), the oil producing nations that set the global oil prices, use the American dollar as the main currency. This means that as the value of the dollar decreases, the decrease is directly reflected in the oil prices as they rise in terms of the dollar. “Since oil is priced using the American dollar, what Americans pay for oil will increase to compensate for this change. At the same time, however, other nations are shielded from the same oil price increase because their own currencies are more valuable than the dollar” (Kyl). One way to get around this would be to return America to a ‘strong dollar policy’, as President Obama is already working on, the effects would be to put confidence back in the dollar and greatly reduce the amount U.S. consumers pay for oil.
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Ryan Wisneski 3 Industries, as well, have been greatly impacted due to the increase of gas prices over the past couple of years including that of the trucking and airline industries. In both of these industries, as well as many others that are dependent on fuel, the operation costs have risen to compensate for these rising prices of fuel. “Every penny increase in the cost of jet fuel costs the U.S. airline industry $190 to $200 million annually” (Democratic Party). To compensate for this, airlines do not offer as many flights as they used to because they cannot afford to have flights that are not full to capacity as the demand for flights has greatly dropped. In the past fuel has accounted for 10 to 15 percent of operating costs, but now makes up 20 to 30 percent; hard to
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This note was uploaded on 02/19/2011 for the course ECO 2023 taught by Professor Barefield during the Spring '09 term at Tallahassee Community College.

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Economics Paper - ECO2023 Economics Paper Ryan Wisneski...

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