1.
Briefly summarize the issue. Include a link to
the article if it is available online.
The Australian dollar has reached a three
week low and is expected to lower. Iron ore prices have also decreased due to a
decrease in Chinese demand.
2.
Relate the issue to one or more of the economic
concepts we have discussed in class
The concept that relates to the
iron ore price decline is supply and demand. The demand for Australian iron ore
from China has decreased significantly, shifting the demand curve left and
leaving the equilibrium price down. Since Australia is exporting the iron ore,
Australia’s net exports will decrease. This will drive down the GDP down, hence
the lowering of the Australian dollar.
3.
What led to this situation? Can you suggest a
resolution to this problem? Are there policies that could improve the
situation?
The article suggests that the
lowering of the Australian dollar is related to the lowering of iron ore price.
However doesn’t give any cause for the lowering in demand for iron ore from
China.
Some solutions for this problem can
come from the GDP equation. If the amount of consumption, investment, or
government spending were to increase or imports would decrease, the GDP would
increase. This GDP increase could be done by providing incentives, tax breaks,
or tariffs to increase or decrease their respective variables. The government could
also create new programs, of which would increase spending, that could monitor
or help prevent this from happening in the future.
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