Analyzing the Components of GDP and Impact of Low Real Wage Growth on Macroeconomic Equilibrium in Australia

This article analyzes the four components of GDP and the impact of low real wage growth on macroeconomic equilibrium in Australia. It discusses consumption, investment, government expenditure, and net exports as components of GDP, and examines the effects of low wage growth on the economy.

Running head: Economics for business
Economics for business
Name of the candidate
Course name
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Economics for business
Table of Contents
Question 1: Analyse the four components of GDP....................................................................3
Government expenditure............................................................................................................7
Net exports.................................................................................................................................8
Question 2: Impact of a period of low real wage growth on macroeconomic equilibrium in
Australia.....................................................................................................................................9

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Question 1: Analyse the four components of GDP
The four components of GDP are consumption, investment, government expenditure
and the Net Exports. Through the analysis of four components of the GDP, the development
of the economic analysis is possible as it will highlight the segregation of the national GDP
among the components that will not only induce the economy to identify the resource
utilisation. Through the development of resources it will be important for the economy to
increase the reach of both human and capital resources. On the other hand, through the
resources utilisation, the economy will be mainly boost up the economic development.
Consumption
Total 1987
Total 1989
Total 1991
Total 1993
Total 1995
Total 1997
Total 1999
Total 2001
Total 2003
Total 2005
Total 2007
Total 2009
Total 2011
Total 2013
Total 2015
Total 2017
0
200000
400000
600000
800000
1000000
1200000
FINAL CONSUMPTION EXPENDITURE: Current
prices
FINAL CONSUMPTION EXPENDITURE: Current prices ;
Question 1 (10 marks)
Figure 1: Consumption expenditure at current prices
(Source: Abs.gov.au, 2019)
The Australian economy has witnessed slow growth within the economy and has
forced the economy to slow down. The G20 economy has witnessed growth of 0.3% and the
main reason behind the slow growth of the economy is mainly due to slow spending of
consumers. The Australian dollar for the first time in 27 years fell down against US dollar.

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One of the major factor that is contributing to the slow growth of the economy is falling price
of houses. Four factors has been identified behind the fall in household spending are weak
wage, slow housing, limited wealth effect and high debt. The consumer are not using their
income for purchase of houses but the sharp increase in the consumption expenditure curve
for the economy at the current price is showing that the economy is having high demand for
the products like advanced medical services and other essential products.
Figure 2: Spending of Australian consumer on components of good
(Source: Rba.gov.au, 2019)
The above figure is showing the fact that most of the consumers are spending heavily
on the essential goods that are mainly income inelastic in nature. The essential services are
including medical services, educational services and many other sectors. However, the

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demand for the fresh fruits vegetables is increasing continuously in Australia. However, the
increased price level of petrol, the price of transport is increasing and is increasing the price
of fresh fruits and vegetables.
Figure 2: Consumption of goods and services as % of total consumption
(Source: Rba.gov.au, 2019)
The contribution of the economy towards the development of % consumption from
1988 to 2013 has clearly shown that economy is having less consumption of goods and is
having high consumption of services. This is important in the sense that through the
development if this kind of breakdown the economy of Australia should focus on developing
more amount of services compared to goods.

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1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
-6
-4
-2
0
2
4
6
8
investment % of GDP
investment % of GDP
Figure 3: Rate of investments as % of GDP
(Source: Rba.gov.au, 2019)
The investment as % of GDP is showing a mixed rate of trend line as the investment
in the mining industry in the year 2012/13 was about 9% and in 2000, the investment was
around 2%. The economy tried to identify the development of investment in the LNG sector
and oil industry. On the other hand, through the development of resources, the economy will
be boosting up the economic impacts and they are trying to indulge the development of
resources and the economy is mainly boosting of better resources development. On the other
hand, through the increased level of the investment it is possible to increase the amount of
investment in the year 2012/2013 was around $136 billion. Australia is moving towards the
development of better accessibility of resources and is investing heavily on the renewable
energy sources. Through the investment in the renewable energy sources, the development of
better accessibility will automatically allow the growth of the economy. Moreover, increase
in the investment in the energy will not only increase the development of resources.

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Government expenditure
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
16
16.5
17
17.5
18
18.5
19
19.5
Government spending
Government spending
Figure 4: Government spending as percentage of GDP
(Source: Abs.gov.au, 2019)
In the initial period, the government spending is having high values in the year 1991-
1992. The last phase of increase is the government spending is mainly decreased. The year
2017, the government spending increased by huge marginal rate. The utilisation of
commercial spending of economy, the government of Australia are going to increase the
development in the economy is going to increase the development of the economy. The
government is going to increase the development of the economy. The Australian
government is going to increase the investment in the cost minimisation policies that would
be taken by the government. In order to increase the resources utilisation. Through the
development of resources it is possible for the government to identify the resources
development, the economy is involved into better and upgraded investment in the mining
industry.

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Net exports
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
0
5
10
15
20
25
Net Exports
Net Exports
Figure 5: Net Exports as percentage of GDP
(Source: Abs.gov.au, 2019)
The net export curve is going to highlight the development of resources that will not
only indulge in net exports. On the other hand using the development of economy, the
improvement in the economy is going to highlight the information of the economy. The
increase in the net exports will obviously allow the improvement in the economy but will also
allow the foreign investors to come and invest within the economy. This is important in the
sense that it will increase the development of the Australian economy that will bring more
amount of foreign currencies that will not only allow the economy to get more attention from
the foreign investors. Not only the development of the economy is possible but the
incorporation of better growth of foreign reserves are also possible. The capital growth is
important and is mainly going to increase the overall efficiency of the economy is possible.
The economy growth is mainly helping in the improvement in the net exports but will also
allow the development of the foreign direct reserves and FPI will increase. Increase in the net

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exports means the improvement in the capital and current account balance of Australia will
improve. In order to bring the development of resources, the development of economy will
not only increase the skills but will also allow the development of efficiency of human
resources.
Question 2: Impact of a period of low real wage growth on macroeconomic equilibrium
in Australia
The difference between real wage and nominal and real wage is that nominal wage is
measured in terms of monetary wage. Real wage is the wage that is measured in terms of
purchasing power parity of the currency. The nominal wage is received on the base of
monetary salary. This includes wage of employees, salaries and many more. Now in order to
identify the impact of low wage growth within the economy, the aggregate demand and
supply is one of the most helpful tools that actually will definitely increase the resources
distribution and will allow the economy to bring in better performances.
Figure 6: Real wage rate and equilibrium level

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(Source: Created by Author)
Currently the Australian wage market is showing bit of drama. Private Sector wages
are marginally higher in the second quarter after receiving continuous low growth in six
consecutive quarters. The annual inflation rate is about 1.83% real wage did not have the
scope to move freely. The real wage growth is lagging well beyond the productivity rate and
wage share in the national income is very less. The seasonall7 adjusted real wage index rose
to 0.5% in the quarter of September in the year 2017 and the wage index was around 2%
throughout the year. The second quarter of March witnessed negative growth of -0.3% and
June quarter witnessed growth of about -0.2%. On the other hand, through the development
of resources, the economic involvement is mainly going to highlight the consequences that
economy of Australia are having due to low real wage growth (Governor, 2017).
For the past few years, the Australian growth as well as the standard living has
becomes more or less stagnant in nature. The Australian house hold is showing less
disposable income due to increased and persistent low wage growth in wage. The immediate
impact that has fallen on the employees earning low income companies in the form of
Margaret Peacock has been earning low strand of income. In 2013, the unemployment rate
was 5.5% and the wage rate was around 3.2%. The unemployment rate was increasing and
the economy started to slow down in 2014. In 2017, the unemployment rate was around the
same but the wage growth declined to about 1.96% (The Guardian, 2018). The government
need to identify the resources and they need to increase the development of economy through
the increase in the job opportunities for the employees living in Australia. The economy is
not growing because of the fact that government intervention is very low and the government
of Australia is showing lack of confidence in the FDI to come and invest in the economy.
Through the information available within the economy, the development of resources will

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allow the economy to increase the expansion of economy. The country is currently going
under a period of government policy but the government intervention is basically allowing
the economy to grow.
Figure 7: growth in real wage
(Source: Australian real wages growth flat – the rip off of workers continues, 2017)
The above data is showing the fact that RBA inflation rate is going well above the
annual growth in wage price index. It has shown the fact that in order to increase the
efficiency of the resource development the inflation rate the interest rate is going upwards
and the development of inflation rate is important for the economy to increase the
government policy. Through the incorporation of better accessibility is going to increase the
improvement and shift in the real wage is going to increase. The above graph is going to
highlight the importance of government policy so that the interest rate and the inflation rate
can be controlled. On the other hand increasing that level of productivity will not hamper the
macroeconomic growth within the economy. The government must increase in policies so
that the real wage and income of the consumers can increase. Through the development of

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better policy the investment will increase and it is highly important in the sense that through
the innovation in the technology will definitely increase the interest rate
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