Question

Using appropriate diagrams, explain the likely impact of drought on macroeconomic equilibrium in Australia Use evidence drawn fom nedareportsts illustrate you answer. How might government policy response to the drought moldiythe macoeconomic mpa ofe

Answer 1

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Nature is the mother of all, and it is this nature which at times becomes the supreme destroyer. One of such ways that the nature could impact our lives and economy is drought. Let us discuss the impact of drought on the macroeconomic equilibrium on the economy of Australia. Here, let us broadly discuss the impacts with reference to the recent drought in Australia in the year 2002.

                                                Drought (as in the case of the drought in the year 2002) has significant after effects on the social life of the people as it effects both economic and social life of the beings. One of the primary impacts of drought on the economy of Australia was the lack of Irrigation and Crop water supply in the farm lands. This led to a huge proportion of crop land not being able to receive fresh irrigation water and had to sustain on the polluted water which the farmers could afford. This resulted in a huge number of croplands not being able to cultivate the crops, and the ones who did cultivate, could manage only non-healthy and drought affected poor quality crops. This resulted in a big impact on the economy of Australia which suffered a huge push back due to the almost non-existent agricultural product. Since the output of the agricultural products was very less, the farmers could only manage a very less quantity of products, so in order to sustain their livelihood, they had to increase the price of the crops , which led to the overall rise in the price f the final products in the market, and there was a huge demand for these crops , since there was almost no or limited supply. The food consumption level of the rural and to some extent the urban house holds decreased by a huge proportion. This led to the people being deprived of the necessary nutrition for their body. This further resulted in to the spread to many diseases. The utility level of the households across the country went down drastically and their savings became largely affected. This directly resulted in the welfare of the households being in downwards sloping. The overall welfare of the people suffered a major push back.

However, we could look in another sphere to scratch out some of the possible positive impacts of the drought, as it so happened after the Australian drought in the year 2002. Since, some of the crops which require huge amount of water, were totally nonproductive, there as a huge rise in the demand for labor in these agricultural fields where water is not required in large extent. This led to more of the laborers getting new jobs. There was high productivity in those sectors and it directly led to the wages of the labors getting increase. The result of the increase of the laborer’s wages resulted in sufficient amount of savings in the hand of the poor laborers. Since the production of the crops was more than sufficient, the price level of the crops reduced to a very low and affordable level. Moreover, since the laborers now had more income, they could manage a very well sustained livelihood. Since they had the required nutrition, diseases started to disappear form the society. The overall utility of the people got increased and they became happier than before. This directly led to the increase in the welfare of the people.