Pop Quiz

Question 1

Gas prices have reached record highs and have the potential of going higher due in part to supply constraints caused by the US ban on the importation of Russian oil and liquified natural gas.

You'll recall that oil is a key input to the gasoline that we fill at the pump (simplified supply chain shown below).

On March 23rd, House Democrats introduced the Gas Rebate Act of 2022, which would send Americans a $100 per month energy rebate — and $100 for each dependent — for the rest of the year in any month where gas prices exceed $4.00 per gallon. That same day, California Governor Gavin Newsom proposed giving $400 payments to the owner of a vehicle registered in California as a way to address skyrocketing gas prices.

Explain the likely impact of either of these policies in the short term and the long term and state any assumptions you make.