Trends in different expenditure components of Gross Domestic Product

Running head: BUSINESS ECONOMICS
Business Economics
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BUSINESS ECONOMICS1
Table of Contents
Question 1........................................................................................................................................2
Trends in different expenditure components of Gross Domestic Product...................................2
Question 2........................................................................................................................................6
Low real wage growth in Australia.............................................................................................6
Government policy intervention to address low real wage.......................................................10
References......................................................................................................................................11

BUSINESS ECONOMICS2
Question 1
Trends in different expenditure components of Gross Domestic Product
There are three common approaches for estimating Gross Domestic Product of a nation.
These include income approach, expenditure approach and production approach. Under
expenditure approach, GDP is computed as a sum of expenditures of household consumption,
gross investment, government expenditure and net export (abs.gov.au, 2019). In order to analyze
the trend in different expenditure components of GDP, data on each of the components are
collected from Australian Bureau of Statistics. The original data series on these components are
collected from national income account estimates presented in million dollars. In order to express
these components in real per capita terms, collected data are divided by the population of
respective years.
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
20000.00
25000.00
30000.00
35000.00
40000.00
45000.00
Real per capita consumption
Year
Consumption
Figure 1: Trend in real per capita consumption (1987 – 2018)
As shown from the above figure per capita real consumption in Australia constitutes an
upward rising trend since 1987. The only exception is observed in the year 2009. Per capita real

BUSINESS ECONOMICS3
consumption declined slightly during 2009 mainly due to global recession. Consumption
expenditure is the largest components of Australia’s GDP. In 2018, the percentage share of
consumption in GDP was 56.1 percent. Household consumption expenditure is a function of
disposable income. One factor explaining growth of consumption is the increase in household
income and population growth (abs.gov.au, 2019). Consumption is a direct function of income
and hence, increase in income leads to an increase in consumption expenditure. Trend in per
capita real consumption depends on both growth of household consumption and that and
population growth. Consumption expenditure in Australia has grown at a faster rate than
population growth resulting in an increase in per capita real consumption.
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
0.00
5000.00
10000.00
15000.00
20000.00
25000.00
Real per capita investment
Year
Investment
Figure 2: Trend in real per capita Investment (1997 – 2018)
Another important component of Gross Domestic Product is investment expenditure
made by public and private sector. This is also termed as gross fixed capital formation. The gross
fixed capital formation includes total value of acquisition by producers less disposal of fixed
capital assets plus capital work done in a particular accounting year plus addition to non-product