Australia,+New+Zealand+Disasters+to+Slow+GDP+-Christy

** Australia, New Zealand Disasters to Slow GDP Before 2012 Rebound, IMF Says **

  Source: http://www.bloomberg.com/news/2011-04-11/australia-n-z-disasters-slow-gdp-before-rebound-imf-says-1-.html By Michael Heath - Apr 12, 2011 7:06 AM CT

__Brief Explanation:__ Due to diasaters such as floods and earthquakes, Australia and New Zealand's economy is affected and will "grow at a slower pace". The flooding is said to disrupt the growth of both the key mining and agricultural industry in Australia. The potential output of key mining and agriculture, as shown on graph 1 [production possibility curve (PPC)], shifts inward from Y to Y1, as there is a fall in the quantity of factors of production caused by the flood. Also, the article states that Australia's gross domestic product (GDP) will increase 3 percent, half a percentage point lower than October's estimation. Yet, the central bank raised the prediction to 4.25% because "flood rebuilding will accelerate" the GDP growth in the second half. This implies that GDP might not be the best way to calculate economic growth as it calculates the cost of rebuilding regardless of the negative effect of a flood.

__Vocabulary:__  **Economic growth:** An increase in an economy's real level of output over time (Quantitive) **Production Possibility Curve:** Used by economists to show the concepts of scarcity, choice and opportunity cost, among other things; Shows the maximum combinations of goods and services that can be produced by an economy in a given time period, if all the resources in the economy are being used fully and efficiently and the state of technology is fixed. **Potential Output:** the highest level of real gross domestic product output that can be sustained over the long term **Quantity:** the total amount of goods or services **Factors of production:** There are 4 resource that allow an economy to produce its output, including land, labour, capital and management.  **GDP:** Gross Domestic Product- The total value of all final goods and services produced in an economy in a year **Revenue:** the income a company receives from its normal business activities, usually from the sale of goods and services to customer.

<span style="font-family: Arial,Helvetica,sans-serif;">__Graph:__ <span style="font-family: Arial,Helvetica,sans-serif;"> Graph 1: <span style="font-family: Arial,Helvetica,sans-serif;"> <span style="font-family: Arial,Helvetica,sans-serif;">This is a production possibility curve (PPC) that shows the the potential output of key mining and agriculture. If Australia decides to produce on point W, it will produce 7.5 units of Agriculture while only 1.5 of Mining. While when it produces on point V, that means it is not using all of its resources efficiently and represents the actual output. The article states the PPC shifts inward from Y to Y1, as there is a fall in the quantity of factors of production caused by the flood.

<span style="font-family: Arial,Helvetica,sans-serif;">__Evaluation:__ <span style="font-family: Arial,Helvetica,sans-serif; line-height: normal;">As graph 1 has shown, the flood has great impact on the PPC of both the agriculture and mining industry. It caused a shift inward of the PPC because of a fall in the quality/quantity of factors of production. These factors of production include land and capital as the flood has destroyed the agriculture, resources and infrastructures of the country. Therefore, both the agriculture and mining industry experiences a fall in the quality/quantity of its factors of production.

<span style="font-family: Arial,Helvetica,sans-serif;">Also, i had mentioned that the article states that Australia's gross domestic product (GDP) will increase 3 percent, half a percentage point lower than October's estimation. Yet, the central bank raised the prediction to 4.25% because "flood rebuilding will accelerate" the GDP growth in the second half. I think this implies that GDP might not be a good measurement when it comes to calculating economic growth as it is calculated by adding up the total value of all final goods and services produced in an economy in a year. Yet, in this cause, Austrilia is experiencing growth in GDP because it has to rebuild resources that are damaged by the flood; and yet it is still added to the GDP,regardless of the negative effect of a flood.

<span style="font-family: Arial,Helvetica,sans-serif;">In conclusion, I think the flood, although brings negative effect in general, has some positive contribution too. First of all, even though GDP might not be the best way to calculate economic growth, yet it is the universal way of determining an economy's growth. Therefore, since the flood increases the GDP of Australia, it will be considered as "positive". Next, the article also states that due to the flood, mining companies have increased hiring of people. This " Hiring by mining companies helped drive Australia’s jobless rate down to 4.9 percent in March, matching a two-year low set in December and approaching what government officials view as full employment." Even though the flood might decreases the amount of profit of an economy, it actually drive jobless rate down and benefits many jobless people. Therefore, it might be beneficial in certain way.

<span style="font-family: Arial,Helvetica,sans-serif; font-size: 15px; line-height: 24px;">I personally think that GDP is not an accurate way of calculating economy growth and therefore countries should start developing new methods such as GPI to obtain a better view of the economy. Also, for Australia, I think companies should work with the government to improve on all the factors of production that were damaged during the flood. The faster the rebuilding happens, the faster the economy can go back to the original level of production (Y of graph 1).