Determinants of Gross Domestic Product in Australia

The article discusses the determinants of Gross Domestic Product (GDP) in Australia in terms of per capita. It covers the values of consumption, investment, government expenditure and net exports. The data has been collected from the Australian Bureau of Statistics. The article also mentions the importance of personal consumption expenditure, business investment and government spending in determining the GDP of Australia.

Running head: ECONOMICS
Economics
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Answer 1
The below table shows the determinants of the gross domestic product consumption,
investment, government spending and net exports of Australia from the year 1987/88 to 2017/
18. The net exports are found by subtracting the total exports by the imports. The data have
been collected from the Australian Bureau of Statistics. The time series data have been
collected from number 5204. Australian system of national accounts from Table 2:
Expenditure on Gross Domestic Product.
Table 1 Expenditure on GDP
Year Consumption Investment
Government
Expenditure Net export Population
1987 505067000000.00 131591000000.00 133888000000.00 30298000000.00 16394641
1988 521896000000.00 141447000000.00 138926000000.00 31506000000.00 16687082
1989 543730000000.00 156613000000.00 143014000000.00 18886000000.00 16936723
1990 564782000000.00 158032000000.00 146803000000.00 19127000000.00 17169768
1991 573523000000.00 143051000000.00 151502000000.00 33432000000.00 17378981
1992 587235000000.00 137333000000.00 155364000000.00 40615000000.00 17557133
1993 599256000000.00 146445000000.00 159315000000.00 44195000000.00 17719090
1994 610441000000.00 154929000000.00 161047000000.00 49868000000.00 17893433
1995 635755000000.00 172010000000.00 166476000000.00 42517000000.00 18119616
1996 658707000000.00 176718000000.00 173453000000.00 51664000000.00 18330079
1997 499675000000.00 188448000000.00 176912000000.00 58253000000.00 18510004
1998 524405000000.00 206798000000.00 184085000000.00 54846000000.00 18705620
1999 554461000000.00 215979000000.00 192423000000.00 52119000000.00 18919210
2000 578069000000.00 233460000000.00 198347000000.00 54597000000.00 19141036
2001 596453000000.00 214916000000.00 201699000000.00 72697000000.00 19386461
2002 614930000000.00 234526000000.00 207904000000.00 69684000000.00 19605441
2003 639721000000.00 264000000000.00 214055000000.00 52295000000.00 19827155
2004 671957000000.00 287062000000.00 223534000000.00 33667000000.00 20046003
2005 702497000000.00 304557000000.00 230777000000.00 18610000000.00 20311543
2006 725303000000.00 329755000000.00 238004000000.00 8740000000.00 20627547
2007 764770000000.00 344659000000.00 245505000000.00 -4919000000.00 21016121
2008 802366000000.00 374858000000.00 252932000000.00 -30298000000.00 21475625
2009 806941000000.00 380571000000.00 263482000000.00 -14925000000.00 21865623
2010 833194000000.00 387223000000.00 268049000000.00 -22138000000.00 22172469
2011 866398000000.00 401162000000.00 277169000000.00 -49212000000.00 22522197

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2012 892157000000.00 447442000000.00 287291000000.00 -72775000000.00 22928023
2013 907941000000.00 460882000000.00 288131000000.00 -58985000000.00 23297777
2014 930082000000.00 452765000000.00 292564000000.00 -33338000000.00 23640331
2015 951908000000.00 438441000000.00 299666000000.00 -15450000000.00 23984581
2016 978114000000.00 423372000000.00 312459000000.00 7654000000.00 24389684
2017 1001197000000.00 422428000000.00 328092000000.00 10851000000.00 24775564
2018 1029816000000.00 440890000000.00 340929000000.00 -568000000.00 25101917
(Source: Australian Bureau of Statistics, Australian Government. 2019).

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However, the first part of the question states to find the determinants of the gross
domestic product in terms of per capita which means each of the determinants are divided by
the total population. When each of the values are divided by the total population, the
consumption, investment, government spending and net exports per capita are found.
Table 2: Determinants of GDP per capita
Year
Consumpti
on
Investmen
t
Governme
nt
Expenditur
e Net export
1987
30806.8
3
8026.46
4
8166.57
1
1848.04
3
1988
31275.4
5
8476.43
7
8325.36
2
1888.04
7
1989
32103.6
1
9246.94
8
8444.01
8
1115.09
2
1990
32893.9
8
9204.08
5
8550.08
6
1113.99
3
1991
33000.9
6
8231.26
5
8717.54
2
1923.70
3
1992
33447.0
9
7822.06
3
8849.05
3
2313.30
5
1993 33819.8
8264.81
5 8991.15
2494.20
3
1994
34115.3
7
8658.42
8
9000.34
1
2786.94
4
1995
35086.5
6
9493.02
7
9187.61
2
2346.46
3
1996
35935.8
5
9640.87
5
9462.75
2
2818.53
7
1997
26994.8
6
10180.8
7
9557.64
2
3147.10
9
1998
28034.6
2
11055.3
9 9841.16 2932.06
1999
29306.7
7
11415.8
6
10170.7
7
2754.81
9
2000
30200.5
1
12196.8
3 10362.4
2852.35
3
2001
30766.4
7
11085.8
8
10404.1
2
3749.88
5
2002
31365.2
7
11962.2
9 10604.4
3554.31
9
2003
32264.8
9
13315.0
7
10796.0
5
2637.54
4
2004
33520.7
5
14320.1
6
11151.0
5
1679.48
7

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2005 34586.1
14994.2
8
11361.8
6
916.227
8
2006
35161.8
6
15986.1
5
11538.1
6
423.705
3
2007
36389.6
8
16399.7
4
11681.7
5
-
234.058
2008
37361.7
1
17455.0
4
11777.6
3
-
1410.81
2009
36904.5
5
17404.9
9
12050.0
6
-
682.578
2010
37577.8
6
17464.1
4
12089.2
7
-
998.445
2011
38468.6
3
17811.8
5
12306.4
8
-
2185.04
2012 38911.2
19515.0
7
12530.1
3
-
3174.06
2013
38971.1
4
19782.2
3
12367.3
2
-
2531.79
2014
39343.0
2
19152.2
3
12375.6
3
-
1410.22
2015
39688.3
3
18280.1
2
12494.1
1
-
644.164
2016
40103.5
9
17358.6
5
12811.1
1
313.821
2
2017
40410.6
6
17050.1
9
13242.5
6
437.971
9
2018
41025.3
9 17564
13581.7
9
-
22.6278

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0
5000
10000
15000
20000
25000
30000
35000
40000
45000
Consumption
The personal consumption expenditure is one of the important determinant of the gross
domestic product. The above graph shows the value of consumption in per capita. It shows
that the consumption value at first increases from 30806 in the year 1987, then it increased
till 1995. After that the value declined sharply in the year 1997. However, it went on
increasing after that till 2018. However, it has been noticed that the gross domestic product of
Australia has slowed a lot in the recent times.
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
0
5000
10000
15000
20000
25000
Investment

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The business investment is the second determinant of the gross domestic product. It is
known to include the purchases which the companies make for producing consumer goods.
The graph above shows that the government investment has increased a lot from 2003. There
is also a sharp rise in investment between 2011 and 2013. The reason can be because of the
mining boom taking place at that time. , however, the investment has reduced after the
mining boom have subsided. While taking investment into account, it should be kept in mind
that most of the fixed investment is non-residential investment.
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
0
2000
4000
6000
8000
10000
12000
14000
16000
Government Expenditure
The government expenditure or spending is the third most important determinant of
the gross domestic product. The government spending or expenditure is the purchase of
goods and services that comprises of public consumption as well as transfer payments that
include income transfer and capital transfer. The social security of Australia represents more
than 30 percent of the government’s expense. During the year 2016 and 2017, it has been
found out that the Australian government have spent around $158.6 billion on the social
security. The category of the government spending is child care fee, family benefit tax,
payments for veterans, pensions, funding for aged care services and also funding for the
disable people.

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1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
-4000
-3000
-2000
-1000
0
1000
2000
3000
4000
5000
Net export
The graph above shows the trend for net exports. The net exports have been found to
increase a lot and reach the highest in 2003 and then, it declined sharply after that in 2011
and 2012. The net exports are found by subtracting the value of exports to the value of
imports. Ehen the exports are higher than the imports the net exports are positive on the other
hand when the imports are higher than the exports, the net exports turns out to be negative in
nature (Robinson, Nguyen, & Wang, 2017) The graph above shows that from 2007, the net
exports have been negative although after 2015 it increased a little.
Answer 2
The real wages are those wages which are adjusted for inflation or the wages in terms
of the amount of services and goods which can be bought. The real wages are a useful
economic measure which shows the monetary value of wages of that year. The real wage
growth provides a much clear representation of the individual’s wages in terms of their ability
to buy with those wages. Therefore, the real wage growth is defined as the total amount of

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services and goods which can be bought with a wage which takes place due to changes in the
relative wages. The real wage growth examines the rise in wages relative to the rise in other
prices of the economy.
The real wage is the compensation which takes inflation into consideration on the
other hand, in case of nominal wage it is just the payment done for labour within an
organization. The nominal wages are those wages which are made to the worker in money
form and it does not take into account the inflation rates and any other market conditions
(González-Rosas, & Zárate-Gutiérrez, 2018) The real wages are known to be determined by
the rates of inflation ad it considers the purchasing power of the given amount of
compensation. The nominal wages do not take into account the rate of inflation and any
market conditions and is mostly determined by the regulations set by the government. The
purpose of the real wage is maintaining he purchasing power when there is changes I the
market. on the other hand, the purpose of the nominal wage is to compensate the efforts and
time for completing the task assigned.
Reasons for the low wage growth rate
The poor productivity is one of the reasons behind the low wage growth. one of the
reasons of the low wage growth is that the productivity gains had been the minimal. When
there will be lack of productivity, it can usually lead to fall in wages. Another reason could be
that the companies are increasing their spending on their benefits. The wage growth in
Australia is considerable low across all the states and territories in both public and private
sectors. The real wage growth is the wage growth relative to the increase in the prices of the
economy. The increased inequality has also lead to low wage growth in the economy.
Presence of excess capacity in the labour market- the labour force utilization rate have
declined from 14.8 percent in 2014 to 13 percent in the year 2019.

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Decline in the terms of trade
Most of the firms in Australia have been providing higher wages during the term
when the terms of trade have been more favourable in nature that was between 2008 to 2011.
When the terms of trade had been high it contributed to higher output prices for the firms
specially in case of mining companies. As the mining boom subsided., the terms of trade
declined by 35 percent. Though the terms of trade have recovered during 2016, there had
been only a moderate increase in the wage growth.
Declining inflationary expectations
Another reason behind the low wage growth is decline in the inflationary expectation. The
expectation for the inflation rate for the unions and market economists have been below 3
percent since 2012 (Arsov, & Evans, 2018). The actual inflation rates had been had been
below expectation for many years. the expectation of inflation is taken into account by both
the employers as well as by the unions when considering the increase in wage in the process
of negotiation.
Decline in the union density
Another factor which leads to the lower wage growth is the decline in the bargaining
power of workers. The bargaining power of the employees are affected by the steady decline
in the union membership. It has been found out that the union density in Australia have
declined over a long term from 41 percent to 13 percent in 2018. The slowdown of the
collective bargaining process in both the public and private sectors led to low wage growth in
Australia. It has also been found out that the wage levels are quite higher in the capital cities
compared to the regional areas.

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Figure 1 Decrease in AD curve
The above diagram shows the effect of the real wage growth on the aggregate demand of the
economy. When the wage growth is low, people will be having less money in hand and
therefore they will demand less. For this reason, the aggregate demand will decrease and will
decrease. As the aggregate demand decreases the AD curve moves from AD1 to AD2. The
equilibrium output also decreases from Q1 to Q2. The price level also decreases from P1 to
P2. Therefore, in case of low real wage, the aggregate demand curve decrease and shifts left.
Government response
The government can increase the wage growth by creating more jobs and by attaining
full employment in the economy. The policies which will help in achieving full employment
in the economy are
Monetary policy which will help in attaining full employment in the economy. In this
case the wage growth will be equal to the productivity gains in the economy (Courvisanos,
Jain & K. Mardaneh, 2016). The monetary policy helps in cutting in cutting interest rates and
therefor encourage people to invest more. This in turn helps in increasing the aggregate
demand which will also increase the gross domestic product and therefore will decrease the
unemployment rate.

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The policymakers can help in growing wages by increasing the minimum wage,
updating the overtime rules and by strengthening rights to collective bargaining.
The government should spend in public investment and infrastructure for attaining higher
wages. The policymakers should also reduce trade deficit for increasing the jobs in the
economy. Undertaking a sustained program for the public investment will create jobs and
also increase the growth and productivity.

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