Financial Issues in BP Pipeline - Essay Example

? Microeconomics and macroeconomics al Affiliation: Introduction The purpose of this research is to analyze various financial issuesthat face or faced BP pipeline related to micro and macro economics. The research covers information on opportunity cost, national debt, and budget deficit, money supply in the economy and monetary options and tools. This will be achieved through analyzing concepts related to micro and macro economics on the various events. It will also involve analyzing them and establishing causal connections as well as making comparisons. Macro economic policies involve fiscal policy concerned with government expenditure, revenue collection and monetary policy according to Mankiw (2011). Micro economics involves policies for enhancing equity and efficiency in the economy via the judicial and the regulatory mechanism. Opportunity Cost Opportunity cost is one of the mostly used concepts in economics. The opportunity cost is the highest valued alternative of something that must be forgone when making a choice. Thus it can be defined as the cost paid when something is given up in order to get something else. Assessing opportunity cost of any event is important in establishing the real cost of any action. BP pipeline should consider the opportunity cost of constructing a pipeline in order to reduce shipping through road transport as suggested by Mankiw (2011). As the company sets its various routes on the table it has to consider the concept of opportunity cost thus assessing why a given route is preferred over the other. Budget Deficit Budget deficit refers to the amount by which a company or government expenses exceed its income for a given period of time as suggested by Dyker (1992). Budget deficit is major point of controversy in BP Pipeline Company given the various expenses the company has suffered due to oil spills. As a result, Congressional republicans are against the tougher oil and gas pipeline safety standards as they are bound to hinder economic growth. This is following the frequent budget deficits that the BP pipeline company has suffered. For instance BP’s latest incidences of oil spills have left the republicans devastated as their contra regulation arguments have been curtailed. This has resulted in the incurrence of huge budget deficits and the republicans and the house representatives have proposed bills to reduce the budget deficits faced by EPA due to such oil pollution. This will lead to a situation where BP pipeline will compensate EPA (Environmental Protection Agency) in case they experience oil spills Leading to a higher budget deficit for BP pipeline . Although BP has proofed successful in stalking the waste, the increasing spending in compensation of damages caused by the spills largely increases its budget deficit. In addition BP is bound to suffer cost of repair and clean-up operations liabilities thus increasing the company’s deficit spending. However BP has promised that everyone affected by spills will be compensated. The Company has thus signed several agreements with local municipalities and shrimpers following the spill effect. It is no doubt thus BP pipeline has suffered huge budget deficits which are affecting the countries economy to a great extend. National Debt National debt is also referred to as government or public debt and it is the money owed by the central government. In the United States national debt can also refer to a municipal or local government debt. National debt reflects on all government liabilities such as pension payment as well as payment for goods and services received and not yet paid according to Cavanaugh (1996). In many cases government tend to borrow funds in a currency with strong command for debt security. National debt can be caused by various aspects such government spending on disaster like the BP oil spill. Following the Alaska oil spill by the Bp pipeline company, the government has suffered great losses which have led to national debt. As a result, the central government has also been forced to borrow funds in order to fund the safe the situation and keep the company running. This is because BP is a great and profitable asset of the country which if it were to close down following the disasters it would lead to negative effects. However BP is facing opposition and distrust from the United States due to the increasing national debts. This district is also based on the fact that Bp might be linking with the Russian Government suing to its national security issues. BP operates sensitive oil pipelines in Alaskan and thus its United States’ subsidiary is regarded as an American company to regulate national debt. Money Supply in the Economy Money supply in the economy refers to the amount of money in the hands of the individuals in a given economy to purchase goods, security and services. Money supply in the economy occurs in different measures, on one hand, the narrow measure focuses on liquid money. The broad measure on the other hand accounts for money as a store of value. An extreme level of increased money supply in the economy leads to inflation. The role of central bank is to ease and tighten money supply in the economy. By easing money, the supply of money in the economy increases while by tightening, money supply in the economy decreases. Money is usually used as a medium of exchange in debt settlement and as a store of value according to Jones (1988). Money supply in the economy is also regulated by the way money is used in different agencies and companies. For instance following BP oil disaster has created fallout in the rate of money supply. This is because of the fact that, the government is usually forced to spend in mitigating such disasters. For instance following the Alaskan oil spill the government had to spend a lot in environmental conservation thus money supply to the economy had to decrease. This also affected money supply in the economy in that many people affected by the disaster had to spend what they had in hand. Thus BP’s oil spill out has led to such economic fallout as decreased money supply in the economy. Monetary Options and Tools Monetary options are based on various exchange rate policies in different countries and regions. Some countries may opt to float their currency, others have introduced own currency board mechanisms linking it with US dollar while others have adopted US dollar. However, there are various monetary options which can lead to monetary freedom. One of the options is automating ones investing either by utilizing salary or direct account deductions. Property is another monetary option; this may involve buying a house which is a long term investment. Big companies such as BP pipeline can invest in expanding their business world wide. Avoiding debts also serves as another monetary option for big companies like BP pipeline. It is always wise for such companies to work out a plan which leads to settling high interest rates. Another monetary option is ensuring good terms with business partners as it creates an opportunity for more options. There are various monetary policy tools including reserve requirements, monetary base, interest rates and discount lending. All these monetary tools influence the nation’s real economy in various ways. For instance monetary base leads to a low interest rate all factors held constant. Reserve requirements influences economy by increasing the accessibility to Loan-able funds hence an increase in supply of money according to Cavanaugh (1996). An indirect decrease of nominal interest rates usually leads to increased monetary supply in the economy. Mitigating Harmful Consequences of BP Pipeline Oil Spill Disasters Oil production activities can have adverse effects on the environment and the companies involved. A good example is the case of P pipeline which has been experiencing oil spills from the pipelines causing disasters. Some issues can be put in place to ensure this kind of disaster dos not cause adverse effects. For instance there is the need for BP and other pipeline companies to ensure constant checkup of their pipelines so they can counter damage before it occurs. The Oil pollution act should also ensure that companies involved with inland oil facilities and tankers should develop individual response plans. The Oil Producing Agency should also ensure development of area contingency plans with enhanced national response systems as suggested by Jones (1988). The government should also ensure that the federal system is well prepared to respond to issues of oil spills from such companies and ensure management of the effects of oil spills. BP pipeline and other such companies to establish plans and schemes for promoting physical development of areas through which pipelines pass through. Oil producing and distributing countries should introduce policies which govern management of resources to avoid costly disasters. Due to the cost suffered by oil producing companies such as BP, these companies need to liaise with organization dealing with pollution effects for prevention and control of pollution. References Cavanaugh, F. (1996). The truth about the national debt: five myths and one reality.Harvard: Harvard Business Press. Dyker, D. (1992). Restructuring the Soviet economy. London: Routledge, Jones, R. (1988). Handbook of International Economics: International Monetary Economics and Finance. New York: Elsevier. Mankiw, G. (2011). Principles of Economics. Auckland: Cengage Learning. Read More