If your wallet felt a lot lighter every time you filled up your car with gasoline in 2004, it's not surprising. During the second half of 2004, the futures and spot prices of oil reached record levels in today's dollars, not adjusted for the effects of inflation. To what extent are higher prices the result of supply and demand factors? How much has speculation affected oil prices?
Because of the record high spot and futures prices for oil in 2004, economists are once again trying to fully understand all of the driving factors behind the jumps in price. Besides supply and demand, speculation is drawing a lot of attention these days.
Economist Edward Nelson and Research Associate Jason Buol explain why warnings about the consequences over budget deficits, while not new, have shifted over time.
Anyone who sets any kind of policy can appreciate the dilemma that faces those trying to prevent construction in floodplains: Is it better to stick to the rules—no matter how harsh—or to exercise discretion under certain circumstances?
