Affect Of Demand On Australian Resources Essay

Question:

Discuss About The Affect Of Demand On Australian Resources?

Answer:

Introducation

The reason behind the affect of demand on the Australian resources was mainly the increase in the demand from china. This has a direct impact on the total export of Australian economy. With an increase in export of the economy, price remaining constant, the aggregate demand curve shifts rightward from the equilibrium demand curve. This increases the real GDP of the economy and causes an inflationary gap (Carvalho, and Rezai 2015). This in turn increases the total expenditure as the country reaches to its full employment level. Thus, the income of the people increases which leads to an increase in the purchasing power. However, due to this various components of expenditure is affected.

Figure 1: affect of increase in export on AD curve and real GDP

Sources: (Bayoumi, and Eichengreen 2017)

From the above figure, it can be seen that with an increase in the export of the country the aggregate demand curve shifts from AD1 to AD2, which causes a rise in the rate of real GDP in the country. Various components of expenditure is affected due to increase in the real GDP and nominal GDP of the nation. The first component is the disposable income in the hand so fteh people will increase thus increasing the purchasing power of the people, which in turn increase the household expenditure. The next component is the net export rate which will get affected by an increase in export because net export= (export-import). Thus, increases in export will increase the differences between export and import. An increase in GDP means that there is an increase in inflationary gap. This requires the government to curb the total expenditure in the economy. This shows that the expenditure of the government will decrease as a consequence of an increase in GDP in Australia (McCombie, and Thirlwall 2016).

Leisure and the Labour Market

Accounting to the labour theory, there is a direct relationship between the supply of labour and the wage rate. This means that as the wage rate increases the supply of labour also increases. However, other factors also affect the supply of labour such as the leisure period that the labour wants to spend (Disney and Gathergood 2016). However, leisure is the opportunity cost of labour time given. An increase in labour hours means the the labour is giving up some more amount of leisure hour which he could have enjoyed. Various factors affect the number of leisure hour a labour chooses depends on factors such as preferences, income level, population and expectations. A change in preference of the labour towards leisure will lead to an increase for leisure spent. This will lead to a leftward shift of labour supply curve (Fleetwood 2014).

Figure 2: shift in hours worked and wage rate

Source: (Author creation)

An increase in labour has two important affect on the company and the income of the worker. The employment level falls, as now there will be less amount of labour available for the company. Most of the workers will be preferring leisure upon work hours. This in turn affects the wage rate which increase compared to previous level because the company will now have less labour and makes them work for longer hours and offer them more wages (Ravindra and Amey 2014)

References

Bayoumi, T. and Eichengreen, B., 2017. Aftershocks of Monetary Unification: Hysteresis with a Financial Twist (No. w23205). National Bureau of Economic Research.

Carvalho, L. and Rezai, A., 2015. Personal income inequality and aggregate demand. Cambridge Journal of Economics, 40(2), pp.491-505.

Disney, R.F. and Gathergood, J., 2016. House prices, wealth effects and labour supply.

Fleetwood, S., 2014. Do labour supply and demand curves exist?. Cambridge Journal of Economics, 38(5), pp.1087-1113.

McCombie, J. and Thirlwall, A.P., 2016. Economic growth and the balance-of-payments constraint. Springer.

Ravindra, H. and Amey, A., 2014. Inter-sectoral Terms of Trade and Aggregate Supply Response Ingujarat and Indian Agriculture.

How to cite this essay: