Components of GDP in Australia

This article discusses the components of GDP in Australia, including consumption, investment, government expenditure, and net exports. It provides data from 1987 to 2018 and analyzes the trends and factors affecting each component. The article also explores the impact of real wages on the economy and suggests government responses to strengthen real wages.

Running head: ECONOMICS
Economics
Name of the student
Name of the university
Author note

ECONOMICS
Answer 1
Table 1 Expenditure component of GDP
Year ConsumptionInvestment
Governm
ent
Expendit
ure
Net export
1987 30806.83 8026.464 8166.571 1848.043
1988 31275.45 8476.437 8325.362 1888.047
1989 32103.61 9246.948 8444.018 1115.092
1990 32893.98 9204.085 8550.086 1113.993
1991 33000.96 8231.265 8717.542 1923.703
1992 33447.09 7822.063 8849.053 2313.305
1993 33819.8 8264.815 8991.15 2494.203
1994 34115.37 8658.428 9000.341 2786.944
1995 35086.56 9493.027 9187.612 2346.463
1996 35935.85 9640.875 9462.752 2818.537
1997 26994.86 10180.87 9557.642 3147.109
1998 28034.62 11055.39 9841.16 2932.06
1999 29306.77 11415.86 10170.77 2754.819
2000 30200.51 12196.83 10362.4 2852.353
2001 30766.47 11085.88 10404.12 3749.885
2002 31365.27 11962.29 10604.4 3554.319
2003 32264.89 13315.07 10796.05 2637.544
2004 33520.75 14320.16 11151.05 1679.487
2005 34586.1 14994.28 11361.86 916.2278
2006 35161.86 15986.15 11538.16 423.7053
2007 36389.68 16399.74 11681.75 -234.058
2008 37361.71 17455.04 11777.63 -1410.81
2009 36904.55 17404.99 12050.06 -682.578
2010 37577.86 17464.14 12089.27 -998.445
2011 38468.63 17811.85 12306.48 -2185.04
2012 38911.2 19515.07 12530.13 -3174.06
2013 38971.14 19782.23 12367.32 -2531.79
2014 39343.02 19152.23 12375.63 -1410.22
2015 39688.33 18280.12 12494.11 -644.164
2016 40103.59 17358.65 12811.11 313.8212
2017 40410.66 17050.19 13242.56 437.9719
2018 41025.39 17564 13581.79 -22.6278
(Source: Australian Bureau of Statistics, Australian Government. 2019)

ECONOMICS
The above table shows the value of the components of the gross domestic product in terms of
real per capita. The four expenditure components of gross domestic product are the
consumption, investment, government expenditure and net exports. The table shows the
values of the expenditure components from the year 1987 to 2018 from the Australian Bureau
of Statistics. The data have been collected from Australian Bureau of Statistics of Table 2.
Expenditure on Gross Domestic Product (GDP) from (5204.0 Australian System of
National Accounts).
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
Consumption in real per capita
Consumption
The graph shows the consumption in terms of real per capita of Australia from the
year 1987 to 2018. Consumption is the usage of goods and services by the households. The
household final consumption expenditure is the market value of the goods and services which
are purchased by households and does not include the purchase of dwellings. Consumption is
the function of income, therefore as the income of the people increases the consumption also
increases. The graph shows that the consumption is increasing at an increasing rate. The
trend above shows that consumption have reached a level high in the year 1996, however it
decreased sharply after that in the year 1997. After that the rate of consumption per capita
started increasing and have reached the highest in the recent year (Australian Bureau of

ECONOMICS
Statistics, Australian Government., 2019). Consumption is the way by which the consumers
use the goods.
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
0
5000
10000
15000
20000
25000
Investment in real per capita
An investment is the asset required with the goal of generating income or
appreciation. The growth in the economy is known to encouraged through the usage of sound
investment at the business level. The government investment is the their most important
determinant of calculating the gross domestic product of a nation. The investment had been
historically during from 2011 to 2014. In Australia the investment spending as a share of the
economy increased to a multi decade high specially between the period 2012 to 2013. The
investment had been so high because of the record level investment spending in the mining
sector (Tadjoeddin, . 2016). The investment spending for the purpose if mining increased
from 2 percent of the gross domestic product to around 9 percent of the gross domestic
product in the year 2012/2013. Therefore, it can be said that the huge rise in investment
during 2012 was specifically due to the boom in the mining sector. The investment in the
mining sector had been much stronger compared to the other sectors since the mining

ECONOMICS
companies expected that the demand for mining in the future was going to be quite strong in
nature.
The above table shows the government expenditure in terms of real per capita or
government spending between the period of 1987 to 2018. The government expenditure is
the purchase of services and goods which is known to comprise of public consumption and
public investment. It also includes income transfers as well as capital transfer. the
government is known to spend huge amount of money towards the supply of those goods
which are not provided by the private sector and are important to for the welfare of the
nation. Most the spending of the government goes of the social security which is known to
dominate the government spending. The graph above shows that the rate of growth of
government spending is even increasing at the present day. The government of Australia
spends most of its money on defence and for public safety and also for educational
purpose(Guzman, Ocampo & Stiglitz, 2018). Although the temporary global financial crisis
has an effect on the government spending. In the year 2016-2017, the government of
Australia is known to spend around $158.6 billion on the social welfare as well as social
security.

ECONOMICS
The net exports are the value which is received by subtracting exports and imports.
The graph above shows that the exports have been very high during 2001 to 2003 and then it
can be observed that in 2011/12, the imports have been very high which led to negative
growth in net exports. One of the reason is the slowdown of trade growth in those years after
the deceleration took place in 2011. The growth in Australian exports had been quite weaker
than it has been expected over the past ten years. However, presently the demand for
Australia’s food products, high skilled manufacturers and the services are known to increase
a lot (Garnaut, . 2015). The exports of Australia rare known to get heavily influenced by the
global demand along with the Australian’s competitiveness in the international markets. The
slower of exports in Australia was basically due to the slowdown in Australia and the global
financial crisis.

ECONOMICS
Answer 2
The real wages are those wages which are adjusted for inflation or the wages in terms
of the amount of goods and services which cannot be bought. Since it is adjusted to account
for changes in the good’s price, the real wage always provides a clear representation of the
individual’s wages. for this reason, the real wage values are more useful than the nominal
wage.
According to the reports published in most of the articles it has been found out that
the growth in real wages are still negative in nature. The Australian Bureau of statistics of
shows that the wage growth in the private sector is known to run around 0.5 percent a quarter
(Bolt, J., Inklaar, de Jong & van Zanden, 2018). The low wage growth has known to become
one of the main challenge in the domestic economy. The nominal wage growth in Australia
known to have decelerated from 2007. It had been the slowest during 2016 but have gathered
momentum during 2017.
The main reasons behind the low wage growth in Australia are the weak productivity
growth, weak inflation and the spare labour capacity. Australia have been facing lower rate
of unemployment after the global financial crisis took place in 2007. Rise in the casual and
self employment, technological displacement, migration and the workforce participation of
the low skill workers are the factors behind the sluggish growth of the real wage in Australia.
Reasons behind the low wage rate
The low wage growth in Australia mainly reflects the poor performance of the private
sector following the end of the boom in the mining industry. It also increases the labour force
underutilization rate (Lisack, Sajedi, & Thwaites, 2017). During the period of commodity
boom, the Australian wages grew much faster, amplified by a strong Australian dollar which
left many businesses uncompetitive in nature.

ECONOMICS
Another major reason behind the sluggish growth of the real wage is that most of the unions
have lost the bargaining power. The reduced bargaining power and the lower wage
expectations is one of the most important reasons behind the low wage growth.
Figure 1 Decrease in AD curve
The above diagram shows the macroeconomic effect due to the reduction the wage
growth. The vertical line represents the price and the horizontal line represents the
equilibrium output in the economy. When the real wage growth decreases, the aggregate
demand curve decreases where the AD curve shifts left from AD1 to AD2. As the aggregate
demand curve reduces the equilibrium output in the economy also declines from Y1 to Y2.
Similarly, the price level in the economy falls from P1 to P2. The new equilibrium point
changes from A to B. therefore, the slow growth of real wage leads to decline in the
aggregate demand in the economy.
Government response
The real wages can be strengthened through improved productivity across the
economy. A tighter labour market along with strong inflation in the economy helps in
pushing up the real wages in the economy. The government should therefore tighten its
P2

ECONOMICS
monetary policy and aim for attaining full employment in the economy. Revitalizing the
wage growth is very important for increasing the living standards in the economy (Guzman,
Ocampo & Stiglitz, 2018). The interest rates should also not be changed until and unless the
wage growth reaches to 4 percent. The policymakers should be raising the minimum wages
which can help in attaining better economy. Therefore, creating jobs and reaching full
employment in the economy is one of the crucial factor. The government should also spend in
public investment as well as in infrastructural facilities for revitalizing the economy.

ECONOMICS
Reference list
Arkolakis, C., Ramondo, N., Rodríguez-Clare, A., & Yeaple, S. (2018). Innovation and
production in the global economy. American Eco
Australian Bureau of Statistics, Australian Government. (2019). Retrieved from
https://www.abs.gov.au/
Bernanke, B. S., Laubach, T., Mishkin, F. S., & Posen, A. S. (2018). Inflation targeting:
lessons from the international experience. Princeton University Press.
Bolt, J., Inklaar, R., de Jong, H., & van Zanden, J. L. (2018). Rebasing ‘Maddison’: new
income comparisons and the shape of long-run economic development. GGDC
Research Memorandum, 174.
Borio, C. E., & Hofmann, B. (2017). Is monetary policy less effective when interest rates are
persistently low?.
Cusbert, T. (2017). Estimating the NAIRU and the Unemployment Gap. RBA Bulletin, June,
13-22.
Freund, C., & Gagnon, J. (2017). Effects of Consumption Taxes on Real Exchange Rates and
Trade Balances.
Garnaut, R. (2015). Indonesia's resources boom in international perspective: policy dilemmas
and options for continued strong growth. Bulletin of Indonesian Economic
Studies, 51(2), 189-212.
Goda, T., Onaran, Ö., & Stockhammer, E. (2017). Income inequality and wealth
concentration in the recent crisis. Development and Change, 48(1), 3-27.

ECONOMICS
Guzman, M., Ocampo, J. A., & Stiglitz, J. E. (2018). Real exchange rate policies for
economic development. World Development, 110, 51-62.
Lisack, N., Sajedi, R., & Thwaites, G. (2017). Demographic trends and the real interest rate.
Rahman, M. M., & Mamun, S. A. K. (2016). Energy use, international trade and economic
growth nexus in Australia: New evidence from an extended growth
model. Renewable and Sustainable Energy Reviews, 64, 806-816.
Tadjoeddin, M. Z. (2016). Earnings, productivity and inequality in Indonesia. The Economic
and Labour Relations Review, 27(2), 248-271.
Temple, J. B., Rice, J. M., & McDonald, P. F. (2017). Mature age labour force participation
and the life cycle deficit in Australia: 1981–82 to 2009–10. The Journal of the
Economics of Ageing, 10, 21-33.