Effect of Mining Boom Economy System †Free Samples to Students

Question: Discuss about the Effect of Mining Boom Economy. Answer: Introduction: Mining has been essential to the Australian economy in bursts since the mid 19th century. In the 1850s there was a great boom induced by finding Gold and Copper in Queensland and Victoria and also South Australia. In the 1970s there was soaring prices of cal gas and iron that brought the current account of the economy into surplus which is not something that has happened since ("Australia' boom-bust history", 2013). Then there is the current boom which has driven up the prices of coal, iron ore, uranium and gas Management. This boom has been known to originate from the iron ore mines of Pilbara or from the coal fields of the Bowen basin (Philips, 2016). This rise in the prices have totally transformed Australian society beyond anything ever before and has raised the standard of living of the general population. It has in particular been of huge help to the communities of Western Australia and has helped them come to their own (Sharma, 2010). This is one of the most important events in the economy for many years. It is one of the biggest shocks that have come to the Australian economy in decades and it is a very positive shock that has helped improve the standard of living of the general population beyond what could have been ever been possible without this boom. A good way to thus measure what is the positive effect of this boom would have been to compare what would have been the situation if the boom had not happened to what has happened now that this boom is there. This is the way of considering a counterfactual and would provide good way to gauge the effects. Firstly it is to be noted that GDP has risen by 6 per cent due to this boom. Then that the price of global exports has also more than triples from what they were in 2003 at the start of this boom. It now accounts for 8 per cent of the GDP of the country where it before used to account for only 2 per cent. There has been a remarkable rise in the disposable income of the households which is 13 per cent higher due to this boom than it would have been without (Downes, Hanslow and Tulip, 2014). There is two ways this boom has affected the economy especially with the exports. There is an in the purchasing power of the people due to the positive externality of this boom as well as there is an increase in the volume of output that has been produced. The greater price of the produced output means that there are higher terms of trade and this in turn helps to boost the domestic economys purchasing power (Brueckner, Durey, Mayes, Pforr, 2013). The Australian dollar also appreciated due to this boom. The real exchange rate is thought to have been 44 percent higher than what it would have been without the boom. This boom was also able to bring down the unemployment in certain sectors with now mining involving more people and thus driving down the rates of the unemployment in the country which has been reduced by about 1.25 percent due this. There was a lso a tendency to control the nominal interest rates so as to control the money supply of the economy during these times. Due to this boom also saw an increase in the volume of trade in the economy mainly from the demand originated in China. This increase in the spending variables helps to increase the capital stock of the country and thus help in the growth of the economy (Jones and Vollarath, 2013). Australia did grow in huge rates at the start of the boom. The most appropriate model to explain this would thus be the Aggregate supply aggregate demand model as this would be able to perfectly encapsulate the effect of this unprecedented shock on the economy. As shown in the figure below it can be seen that point at which the initial equilibrium was situated was E. This is where the initial AD curve and the AS 1 curve would intersect. The GDP level was Y and the price level as P. However, with the positive shock the output level increased to Y*. To adjust accordingly and as there is a supply shock the AS curve would shift to AS2 and the equilibrium is now at E* with price level P*. The entire phenomenon is represented. At the start of the period the monetary policy Management basically consisted of the cash rate being the instrument through which the Reserve Bank of Australia which had by then started taking decisions separate to the government controlled the money supply of the economy. They also had policies of medium target inflation. They began controlling the short term nominal loan rates so as to follow a tight monetary policy so as to control the inflation in the economy. With a decrease in money supply the AD curve as shown in figure 1 moves inwards and the level of Y that it now has becomes less than the full employment level so the price level also drops below the expected price level. This makes the AS curve shift till it comes to an equilibrium at the point E1 with the same Y* but the price level decreased. This is shown. With the increased reserves brought about by the increase in the income due to the boom the Australian got into the programme of slashing the income taxes and was also giving a lot of transfer payment to the households. This causes the aggregate demand curve to shift outwards and then the AS curve shifts to adjust and there is a new equilibrium at E2 as seen in the figure 3. The level of output remains the same but there is an increase in the price level. Structural deficit is something that has been always present in the government due to imbalances in the reserves and surplus. Cyclical deficit occurs due to the business cycles and the recovery that the Australian reserves had due to the mining boom was in a large way the cyclical reserve. The government went into surplus and has maintained that for some years before the Global financial Crisis in 2007-2008. It was also able to clear its debt which is unlike other advanced countries which are often heavily leveraged, government expenditures and the revenues collected. From figure 4 it becomes clear that the increase in the reserves of the country was so the budget line shifts outward. Conclusion: The Australian mining boom has been a boon for the country no doubt. However a lot of doubters Management remain about if the bon has been put to its best possible use. A lot of detractors of the government comment that the increased welfare spending was the government basically sundering the reserves instead of building up its stocks. It is also to be noted that there has recently been a downturn and the growth numbers of Western Australia (Haeney, 2016). It would now be a very good time for the government to try and re-boost the economy through attracting Foreign Direct investment and other types of public investment which is sorely lacking in Australia. It is good news that this sector saw a further boom in 2017 and will hopefully be able to sustain it. References: Australia' boom-bust history. (2013).NewsComAu. Retrieved 4 May 2017, from https://www.news.com.au/national/australias-history-of-mining-boom-and-bust/news-story/6c7ac1c0c58df6a0b7ee2ccef019827a Brueckner, M., Durey, A., Mayes, R., Pforr, C. (2013). The mining boom and Western Australias changing landscape: Towards sustainability or business as usual?.Rural Society,22(2), 111-124. https://dx.doi.org/10.5172/rsj.2013.22.2.111 Downes, P., Hanslow, K., Tulip, P. (2014). The Effect of the Mining Boom on the Australian Economy.SSRN Electronic Journal. https://dx.doi.org/10.2139/ssrn.2701080 Haeney, R. (2016).How Western Australia is handling the end of the mining boom.The Conversation. Retrieved 3 May 2017, from https://theconversation.com/how-western-australia-is-handling-the-end-of-the-mining-boom-69217 Hajkowicz, S., Heyenga, S., Moffat, K. (2011). The relationship between mining and socio-economic well being in Australias regions.Resources Policy,36(1), 30-38. https://dx.doi.org/10.1016/j.resourpol.2010.08.007 Jones, C., Vollrath, D. (2013).Introduction to economic growth(1st ed.). New York: W. W. Norton. Perry, M., Rowe, J. (2015). Fly-in, fly-out, drive-in, drive-out: The Australian mining boom Management and its impacts on the local economy.Local Economy,30(1), 139-148. https://dx.doi.org/10.1177/0269094214564957 Philips, K. (2016).The mining boom that changed Australia.Radio National. Retrieved 3 May 2017, from https://www.abc.net.au/radionational/programs/rearvision/the-mining-boom-that-changed-australia/7319586 Sharma, S. (2010). The impact of mining on women: lessons from the coal mining Bowen Basin of Queensland, Australia.Impact Assessment And Project Appraisal,28(3), 201-215. https://dx.doi.org/10.3152/146155110x12772982841041