Trend in Expenditure Components of Australian GDP

Running head: ECONOMICS FOR BUSINESS
Economics for Business
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1ECONOMICS FOR BUSINESS
Table of Contents
Question 1..................................................................................................................................2
Introduction............................................................................................................................2
Analysis..................................................................................................................................2
Conclusion..............................................................................................................................6
Question 2..................................................................................................................................6
Introduction............................................................................................................................6
Analysis..................................................................................................................................7
Insights into low real wage in Australia.............................................................................7
Conclusion............................................................................................................................11
References................................................................................................................................12

2ECONOMICS FOR BUSINESS
Question 1
Introduction
Gross domestic product is a composite measure of aggregate output level of a nation.
It gives an overall estimate for monetary value of goods and services that an economy
produces in a certain accounting year. Under expenditure method of GDP, estimation GDP is
presented as a sum of expenditure on consumption, investment, government and net export.
The section evaluates trend in different expenditure components of Australian GDP since
1987. Data on different expenditure components are collected from Australian Bureau of
Statistics. The data are then converted into real per capita estimate by dividing measured
expenditure by population. The observed trends are evaluated with necessary economic
explanation.
Analysis
Different components of GDP
Private consumption expenditure
Private consumption expenditure refers to aggregate spending on durable, semi-
durable and non-durable goods and services conducted by all household and other non-profit
organization in the current year (Dullien et al. 2018). Real per capita consumption shows
consumption per person in real terms. The figure below shows the trend in real per capita
consumption in Australia.

3ECONOMICS FOR BUSINESS
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 the series of real per capita consumption from 1987 to 2018
Household consumption is one important contributor of Australian GDP. As the graph
suggests there is an overtime-increasing trend in per capita real consumption expenditure. Per
capita consumption declined slightly in 2009 as shown by a downward break in consumption
line during this time. Consumption is a function of income and varies positively with income.
Increase in per capita consumption is largely resulted from an increase in income overtime.
Faster increase in consumption relative to income results in an overtime increase in per capita
consumption (abs.gov.au, Catalogue no: 3105, Table no. 1.1)
Investment expenditure
Investment indicates change in physical capital stock in a certain period. Investment
expenditure component of GDP measures the aggregate value of capital investment in an
economy. Investment includes purchase of machinery for construction of housing,
construction of factory and any addition to firms’ stock of inventory (Cohn 2015). Figure 2
shows trend in per capita real investment in Australia overtime.