Macroeconomics Switzerland

1. If an economy produces final output worth $5 trillion, then the amount of gross

High oil price for last few years drove the energy industry to come up with a new technological innovation and the result is a new drilling technique like hydraulic fracturing. This new technology made drilling easy in North Dakota and Texas (Timiraos, 2014). With more oil drilled domestically, U.S became net energy exporter instead of an importer. Also falling demand due to energy conservation, more efficient cars, less demand in China and OPEC opted against cutting production levels made the price go down. When Global economic growth was slowing and most economists agree that both supply and demand played role in the last year oil price plunge. Driven by the increased supply, oil price dropped from $82 to $50 between Oct'14 and Jan'15. The IMF summarizes 58% of the drop in oil price to supply and only 42% to demand.

Along with the stocks and bonds, there was also a high demand from foreigners wanting American goods. This occurred because the deflation from the United Sates made it so appealing to foreigners (Romer). On the other hand, because there was such a low income from Americans it reduced their demand for foreign products (Romer). Unfortunately other countries were trying to maintain an international gold standard in order to continue to meet the monetary contraction that was occurring in the United States (Romer). Sadly, this resulted in the deterioration of output and prices throughout countries all over the world. This downturn of other countries started looking like the one occurring in the United States (Romer). Banking panics along with financial crisis started occurring in other countries around the world, not just in the United Sates (Richardson, September 2007). By forcing countries to deflate, the gold standard reduced the value of bank’s collateral and made them more vulnerable to bank runs (Romer). Due to the overwhelming panics in banks and other financial market disruptions, countries globally experienced a tremendous depression in output and prices (Paul Evans).

Benjamin Sovacool explains in his article that over the period of twelve years, the United States shale gas production increased 24.5 times the amount it produced in 1998. From 0.2 trillion cubic feet to an enormous 4.9 trillion cubic feet. Natural gas is also a huge financial benefit to North America. Before this drastic increase of fracking and natural gas production, the United States imported a clear majority of its oil and energy sources from the Middle East. This caused the middle east to obtain a control over the United States economic situation. For example, the 1979 oil embargo caused by OPEC (organization of petroleum exporting countries). According to Kimberly Amadeo, their decision to increase oil prices by a meager ten percent, caused oil rationing in the United States and worsened the already declining economy at this time. Since the increase in fracking and natural gas production, the U.S. has become decreasingly reliant on imported energy sources. Richard Janson denotes, that the impact of this influx of cheap gas has had many positive impacts on not only the economics of the energy industry, but foreign policy and the United States domestic policy. With the downfall in the need for imports for energy and the rise of hydraulic

This was due to the 1973 oil crisis. The oil crisis began in October of 1973 with the imposition of an oil embargo from the Organization of Arab Petroleum Exporting Countries (OAPEC). The embargo was targeted at countries that were perceived to support Israel during the Yom Kippur War. During the embargo, oil prices quadrupled. As a result of inflation, the oil embargo, and a collapsing monetary system, there was a stock market crash.

The reserve requirement is a tool used by the Federal Reserve to adapt the monetary policy to their target range. Reserve requirements control the minimum amount of funds a depository intuition is required to maintain against their liabilities (Federal Reserve, n.d). Furthermore, the reserve requirement is usually tied into a ratio of transaction accounts the depository institutions holds. Consequently, a decrease in the reserve requirement allows institutions to hold less funds enabling them to loan out a greater percentage, thereby increasing the funds available within the

Additionally, the war in the middle east created a suspension in the export of oil to the U.S, and it quadrupled the price of oil. I think that our leaders

The embargo of oil shipments to the United States by the Organization of the Petroleum Exporting Countries (OPEC) resulted in a widespread national energy crisis which, to some degree, created the economic downturn.

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The U.S. imported $157.8 billion in oil from Mexico and Canada (shale oil).This also reduces U.S. reliance on oil imports from the Middle East and Venezuela. It is especially important now that the U.S. no longer imports oil from . Why? Mexico is a friendly country, whereas Venezuela's president often criticizes the U.S. Both Venezuela and Iran have started selling oil in currencies other than the dollar, contributing to the decline in the dollar's value.

The Federal Reserve 's actions affect the economy because changes in the real interest rate affect planned spending. For example, an increase in the real interest rate raises the cost of borrowing, reducing consumption and planned investment. Thus, by increasing the real interest rate, the Fed can reduce planned spending and short-run equilibrium output. Conversely, by reducing the real interest rate, the Fed can stimulate planned aggregate expenditure and thereby raise short-term equilibrium output. The Fed 's ultimate objectives are to eliminate output gaps and maintain low inflation. To eliminate a recessionary output gap, the Fed will lower the real interest rate. To eliminate an expansionary output gap, the Fed will raise the real interest rate.

Therefore, one of the expansionary activities conducted by the Federal Reserve is to set federal fund rate lower, which will affect credit availability, the money supply, interest rates, and security prices. That is to say, ceteris paribus, when the Federal Reserve buys securities in the open market, bank’s reserve accounts (deposit and assets) increases and when the discount rate is lowered it reduces the interest rate in the economy, thereby promoting borrowing, excessive spending by the economic agents, possibility that household, business and government will invest in fixed assets, increment in household purchasing durable goods (plant , state and local government and construction of new

We have thus seen that increase in money supply lowers the rate of interest which then stimulates more investment demand. Increase in investment demand through multiplier process leads to a greater increase in aggregate demand and national income.

The German economy is the largest in Europe and worldwide Germany has the fifth largest economy (“World fact book”, n.d.). It is clear that the German economy holds a key position in the world marketplace. Gross domestic product (GDP) growth is an important consideration for foreign investment as it speaks to the overall health of an economy. GDP growth can be attributed to spending and investments both on and from imports and exports (“What is GDP”, 2005). In 2014 the reported GDP growth rate in Germany was 1.4%, up .9 % from the prior year (“World fact book” n.d.). The Eurozone was deeply affected by a recession stemming from the US and made worse by poor economic conditions in Greece and Spain, among other countries in

This involves buying or selling financial instruments like bonds in exchange of money to be deposited with the central bank. By selling the financial instruments, the central bank mops up the cash in circulation. On the other hand, selling injects money thus increasing the supply of money (Bernanke 2006).