Chapter 4 - 1

chapter 4

Stance Questions

01 Economics

Listen to a lecture in an economics class fill in the diagram with the information that you hear.

M: We’ve been talking about inflation and its effects, usually bad but sometimes good, on the economy. Now, remember, inflation is a situation when the value, the uh, the purchasing power of money goes down.

A dollar today doesn’t buy as much as it did, say, yesterday, or last year, or whenever. It causes prices to go up, But today, let’s talk about stagflation. Stagflation is the combination of inflation and a stagnant economy in which production actually falls.

So, basically, uh, today I want to illustrate stagflation by using a specific event… and, uh, I’ll show you how that event caused the different negative effects that led to stagflation: high prices and a stagnant economy. It takes distinctive conditions to, uh, to create stagflation in the economy, like during the 1973 oil crisis.

The United States, and most of the rest of the world, for that matter, relies upon something called OPEC for its oil. OPEC, or the Organization of Petroleum-Exporting Countries is basically a partnership that collectively produces most of the oil in the world and so can strongly influence the price of oil.

The oil crisis began as OPEC announced it would no longer export oil to the US. This action had a number of consequences… all of which led to the period of stagflation.

The price of raw oil in the US went up… lots… like, 130 percent, since these producers no longer sold their oil there. This means that the US gasoline manufacturers had to raise the price of gas. I mean, they still had to make a profit, right?

So to compensate for the, uh, the increased oil prices, they lowered gas production. You see, I could show you what I mean with a bunch of graphs and mathematical formulas, but really, I’m afraid that would just complicate the issue.

Of course graphs and formulas are important, but right now, in this class, I just want to describe why companies lower production and what results from that action.

Here we go: OK, there’s a really good reason, well, for the oil companies, anyway! Yeah, so there’s a really good reason that companies lower their production. And in this case, I mean that the American gasoline manufacturers lowered their production of gasoline.

You see, when you lower production, the price goes up, Makes sense? No? OK, well, think about it this way: if there is less of any given product, people will pay more for it. Yeah, if something’s scarce, then they’ll typically pay more for that product than they would if there were a lot of it.

So the US oil companies raised the price of gas, which in turn caused an increase in gas prices. But here’s the problem for the gasoline producers−they’re not making any more profit, because as you’ll remember, the price of the raw material, oil, went up.

So hey, prices went up for the consumer. And if I can put in my ‘two-cents’ worth, uh, my opinion is that there aren’t too many things worse for an economy than this.

So you end up with a stagnant economy along with inflation… what do we call it? Stagflation!

1) What is the professor’s attitude toward using graphs and mathematical formulas in today’s class?

2) Listen again to part of the lecture. Then answer the question.

The price of raw oil in the US went up… lots… like, 130 percent, since these producers no longer sold their oil there. This means that the US gasoline manufacturers had to raise the price of gas. I mean, they still had to make a profit, right? What can be inferred about the professor when he says this:

I mean, they still had to make a profit, right?

3) what is the professor’s general attitude about stagflation