COHORT NAME

& Group No:

GMBA
Group 7

Group
Membe
rs:

1.
2.
3.
4.

Adetomilola Adejana
Dhawal Pandey
Dhruv Datta
Sreekar Arelli

Key points discussed:

The group decided that income inequality and oil consumption are the most critical
problems of the world that influence the macroeconomic performance of the world.
Oil Production Vs Consumption: There is already a massive gap in the
production and demand for oil the 86 million barrels of oil that are produced
on average everyday cannot reach the demand of 90 million barrels per day.
And the growth rate in consumption is expected to continue to grow at a
higher rate than the production. The world is at the peak oil stage of
production, i.e. the maximum rate of extraction of petroleum. After this the
rate of production is expected to enter a terminal decline.
One study suggests that the gradual and moderate increase in oil scarcity may
not present a major constraint on global growth in the medium to long term,
although the wealth transfer from oil importers to exporters would increase
capital flows and widen current account imbalances. A time series analysis of
the data from 1971 to 2010 finds that an increase in real oil prices by $10 is
associated with a reduction of world economic growth rate by between 0.4 and
1% in the following year.
With serious concerns over estimated regarding the limited supply of
remaining oil, the world is looking for viable solutions to its multiple energy
requirements. An increase in investment and usage of alternate fuels may
decrease the dependence on petroleum. Therefore, decreasing the reduction
of the world economic growth for every $10 increase in oil prices.

Income Inequality: More money is controlled by the upper 5% of the world,

while the poor, which makes up the greater 95% do not have much purchasing
power available. The wise spread income inequality leads to lack of flow of
money across the world.
The lower earning households have a higher marginal propensity to consume
and so as their purchasing power increases, so does demand. Higher earning
households save more while spending less. Their contribution to demand is
marginally lower as they are in the minority, and so as the rich get richer, the
economy is more stagnated and its potential for growth is lower than if the
wealth has been shared equally and the lower income households were also
earning more. As demand increases, production inadvertently increases and
this brings about a ripple effect of growth in global economy if wealth is redistributed.
In the case of Brazil, the 10% richest contribute 43% of income whereas the
34% poor contribute only 1.2% of the income. This means that majority of
people have low purchasing power, stifling the flow of money. If this divide is
reduced the flow of money will increase, triggering growth.