The Impact of Drought on the Macroeconomic Equilibrium in Australia

ECONOMICS ASSIGNMENT

Contents
Introduction................................................................................................................................3
Impact of drought in the economic equilibrium.........................................................................3
Conclusion..................................................................................................................................6
Reference....................................................................................................................................7

Introduction
Economics at the macro level is vulnerable to the changes in many different factors. Drought
is one such factor that influences activities in different parts of the economy. Drought directly
impacts the aggregate demand in the economy that further changes the equilibrium. The
objective of this paper is to shed light on the impacts of drought in the macroeconomic
equilibrium and set of Australia. The data and information for the analysis of the paper have
been collected from different government databases and news article pertaining to the recent
drought in the country. Apart from that, other similar studies done on the previous occasions
of drought in Australia have also been referred to in order to present a discussion of the topic.
Impact of drought in the economic equilibrium
The most direct and profound impact of drought in the economy of Australia has been in the
energy sector of the economy. A water turbine is one of the major sources of power in the
economy of Australia which gets affected due to drought. Lack of water limits the operation
of the power plants and hence the supply of energy in the economy gets reduced. This, in
turn, contributes to the increasing cost of the operation of the organizations. Lobell, Hammer,
Chenu, Zheng, McLean & Chapman (2015) stated that power or energy is one of the most
common inputs in any kind of business in the economy. Therefore, reduction in the supply
and use of alternative source of power increases the cost of operation. This further influences
the price of goods and services in the economy and inflation increases.