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Economic News, Data and Analysis

Oil Prices

Oil prices have been in the news as of late. Quick Observations.
1) Oil Prices matter – past changes in oil prices are a good predictor of current economic activity. See Oil and the Economy for details.
2) The economy is less suceptable to oil shocks than in the past. Oil as a percentage of GDP has fallen over the past 30 years – primarily due to the growth of the service sector.
3) The only real way to solve the oil problem is to reduce oil consumption. Since the oil supply and price is dominated by OPEC, domestic production won’t do the trick. (I have a nice problem set on this – let me know if you’re interested in seeing this.)

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