Paragraph Completion- Oil Prices and Global Growth

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Paragraph Completion - Oil Prices and Global Growth

Normally, falling oil prices would boost global growth. This time, though, matters are less clear cut. The big economic question is whether lower prices reflect weak demand or have been caused by a surge in the supply of crude. If weak demand is the culprit, that is worrying: it suggests the oil price is a symptom of weakening growth. If the source of weakness is financial (debt overhangs and so on), then cheaper oil may not boost growth all that much: consumers may simply use the gains to pay down their debts. Indeed, in some countries, cheaper oil may even make matters worse by increasing the risk of deflation.

  1. An energy-induced drop in prices, though good for consumer purchasing power, risks reinforcing expectations of lower inflation overall; it is part of the threat’s pernicious nature that such expectations easily become self-fulfilling.
  2. The International Energy Agency, an oil importers’ club, said it expects global demand to rise by just 700,000 barrels a day (b/d) this year, 200,000 b/d below its forecast only last month.
  3. On balance, energy consumers win and energy producers and exporting countries lose with falling oil prices.
  4. On the other hand, if plentiful supply is driving prices down, that is potentially better news: cheaper oil should eventually boost spending in the world’s biggest economies.

    • Correct Answer
      Choice D

    Detailed Solution

    The paragraph starts saying that normally falling oil prices boost global growth, but that this time, knowing whether the lower prices reflect weak demand or increase in supply is important to discern whether there is cause for cheer.

    The paragraph discusses the case of weak demand leading to lower prices, especially where the source of weakness is financial. The penultimate line talks of cheaper oil increasing the risk of deflation.

    Option A- This option elaborates on the idea of deflation discussed in the penultimate line. While it is tempting to say that this option completes the paragraph best, it should be noted that the given paragraph has a structure and this option does not fit it. The paragraph has stated two possible causes for the low price- weak demand and increase in supply. If sentence A were to complete the paragraph, the case of increase in supply and how it impacts global growth will not be discussed, leaving the paragraph incomplete. Hence option A is ruled out.

    Option B- It is clear this option is not the correct one, as it is irrelevant to the given paragraph.

    Option C- This option, again, does not complete the given paragraph. It offers a tangential thought.

    Option D- This completes the paragraph given best, as it discusses the case of lower prices caused by surge in supply of oil, the second factor stated in the “big economic question” the paragraph talks of.

    Correct Answer: Choice (d)

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