Australia+floods+may+cut+GDP+by+1+percent+point

**Title of Article:** Australia floods may cut GDP by 1 percent point **Source:** [] **Date of Article:** Tue Jan 11, 2011 8:47pm EST

**Summary:** In light of the recent floods that hit Australia’s northern state of Queensland, a member of the Reserve Bank of Australia’s (RBA) board, Warwick McKibbin, commented that “a hit to the economy of 1 percent is not out of the question”. A percent point of Australia’s A$1.3 trillion in annual GDP is equal to around A$13 billion. McKibbin’s prediction was the largest estimate yet for the potential damage caused by the floods and his comment knocked the Australian dollar down to a four-week low.

In spite of McKibbin’s prediction, other bank economists had estimated that the impact of the flood on GDP could be at most 0.5 percentage points for the year as a whole. They supported this prediction with the fact that the rebuilding process would add to the growth of GDP once the floods had passed.

Also, Queensland accounts for more than 80 percent of Australia’s coking coal exports, much of which has been affected heavily by the flooding. Adding together its agricultural output, Queensland accounts for around a fifth of the national economy. A PPC graph can be used to show the decrease in Queensland’s potential output due to a fall in the factors of production.

**Vocabulary:** __Supply:__ Quantities of goods and services that sellers are willing to offer at various prices at a given time and place. __Demand:__ The desire of purchasers, consumers, clients, or employers, etc., for a particular commodity, service, or other item. __Inflation:__ Demand for goods is rising faster than companies can produce. __Consumer:__ A person or organization that uses a commodity or service. __Market:__ A market is any one of a variety of different systems, institutions, procedures, social relations and infrastructures where by persons trade, and goods and services are exchanged, forming part of the economy. It is an arrangement that allows buyers and sellers to exchange things. __Commodity:__ A commodity is some good for which there is demand, but which is supplied without qualitative differentiation across a market. __Economy:__ The study of how to allocate limited resources amongst unlimited wants. <span style="font-family: Arial,Helvetica,sans-serif; font-size: 90%;">Positive statement: A statement that can be proven by statistics or some sort of data/evidence. <span style="font-family: Arial,Helvetica,sans-serif; font-size: 90%;">__Normative statement:__ A statement that is based on opinion or value judgement because it cannot be proven by statistics. <span style="font-family: Arial,Helvetica,sans-serif; font-size: 90%;">__Macroeconomics:__ The study of economics of a nation as a whole. <span style="font-family: Arial,Helvetica,sans-serif; font-size: 90%;">__Scarcity:__ The fundamental economic problem of having seemingly unlimited human needs and wants, in a world of limited resources. <span style="font-family: Arial,Helvetica,sans-serif; font-size: 90%;">__Factors of production:__ The resources that are necessary for production: Land, labor, capital, entrepreneurship.

<span style="font-family: Arial,Helvetica,sans-serif; font-size: 90%;">**Graph:**

<span style="font-family: Arial,Helvetica,sans-serif; font-size: 90%;">**Conclusion and Evaluation:** <span style="font-family: Arial,Helvetica,sans-serif; font-size: 90%;">I have chosen to use a Production possibility curve (PPC) to explain this article. A PPC 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.

<span style="font-family: Arial,Helvetica,sans-serif; font-size: 90%;">Graph 1 shows the PPC for the Queensland before and after the flooding. Before the flooding, Queensland had the possibility of producing at any point on PPC1. The flooding destroyed many of Queenland’s factors of production, therefore the potential output of Queensland declined and the curve shifted inwards to PPC2.

<span style="font-family: Arial,Helvetica,sans-serif; font-size: 90%;">In this article, the main factor of production we will deal with is land. Because of the damage done to the coalmines, Queensland has lost some of its factors of production known as land. This means that she can currently produce less coal than before. Also, because of the flooding, Queensland’s land is no longer able to produce as much agricultural output as it could before because of the damage done to the farms and fields.

<span style="font-family: Arial,Helvetica,sans-serif; font-size: 90%;">As I had mentioned above, many bank economist expect the decline of Australia’s GDP to be less than McKibbin’s prediction of 1% due to the inclusion of Australia’s rebuilding process that will undoubtedly give a boost to the country’s GDP. In this case, although the flood has a negative effect to the country, spending money to help rebuilt Queensland is considered as “helping” the country’s economy (following the way GDP is calculated). I highly disagree with this way of analyzing the country’s economical growth. The way GDP works is that as long as you spent money inside the economy, it helps it. GDP disregards the differentiations between the positive and negative spending. I think that a more accurate way to measure a country’s economical growth is by using the Genuine Progress Indicator (GPI). GPI only takes into consideration the positive spending of the economy. This means that the money spent in Queensland’s rebuilding process would be disregarded, as a flooding is not <span style="font-family: Arial,Helvetica,sans-serif; font-size: 12px; line-height: 17px;">considered as something positive that will help the economical growth of Australia.