Drought in Australia: Impact on Macroeconomic Variables and Agriculture

Running head: ECONOMICS
Economics
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ECONOMICS
DROUGHT IN AUSTRALIA
Introduction
The natural disaster which generally takes place as a result of below average
precipitation on any kind of region which also resulted in the shortage of the water supply is
termed as drought. Farmers have known to face a lot of troubles in various places of
Queensland and New South Wales. Huge areas of Australia have been suffering from
droughts which took place for several years with dry conditions which will be comprising of
both federal and state states.
The key macroeconomic variables are the gross domestic product, rate of
unemployment, inflation and rate of interest. The macroeconomic equilibrium is a condition
in the economy where the quantity of the aggregate demand will be equal to the quantity of
the aggregate supply. Drought in most of the cases result to supply shock which results to
sudden decrease in the supply of commodities with the rise in price (Krugman, Obstfeld, &
Melitz, 2015). During the short run, the negative supply shock will be shifting the aggregate
supply curve to the left.

2
P2
P1
Q2 Q1
AS1
AS2
ECONOMICS
Analysis
Figure 1 Negative supply shock as a result of drought
Thee supply curve shifts left as a result of the supply shock were the curve AS1 to AS2. For
this reason the price goes up to from P1 to P2. The quantity supplied also becomes less an
moves from Q1 to Q2. The drought had been comparatively drier compared to the other
years. According to the research the areas which are now to experience severe impacts of
drought are especially on the regions of South Australia, New South Wales as well as North
West Victoria. The effect of rain over the past few years in the western parts of Australia. In
the previous year the dry conditions are known to spread in most of the parts of Australia.
However, rain in most parts of Australia had made the conditions quite bearable for few
months (Recent Australian droughts may be the worst in 800 years.,2019). Many parts of
Albany in the south know to remain dry. After the drought of 1902, Australia had known to
suffer severe drought. One of the reason behind this kind of dry drought is because of the
absence of rain. Many parts of Illawarra and Albany had been suffering from the dry drought