Components of GDP

Discuss about the GDP and GDP Growth Rates Consumption.

Over the years, the global economic scenario has experienced considerable dynamics and growth owing to the changing trends in the economies of the different economies of the countries across the globe. The economic performance and growth of a country, in turn, can be considerably measured by the dynamics and trends in several macroeconomic variables and indicators of the country over the years (Canto, Joines and Laffer 2014). These macroeconomic indicators, each having their own implications on the economy as a whole, are of considerable significance as much of the health of the economy as well as the economic well being of the population of the country depends on the same.

One of the most important macroeconomic indicators in this context is that of the Gross Domestic Product of a country and its dynamics. The Gross Domestic Product of a country within a particular period of time shows the value of the final goods as well as services which are produced within the geographical domain of the country within that particular period (Eichhorn 2013). Thus, the GDP growth of a country shows the growth in the total productivity of the country, which in turn reflects towards the total income, total expenditure as well as on the employment and economic well being of the population of the country.

GDP on the other hand can be of two types- Nominal and Real. While the Nominal GDP of the country shows the money value of the total production of the country without adjustment of inflation, the Real GDP shows the total economic output the value of which is inflation adjusted (Kubiszewski et al. 2013). Thus, a positive growth of GDP is associated with economic boom and a negative one with that of recession and the overall dynamics of GDP of a country reflects the general economic performance of the country to a considerable extent.

Components of GDP: Case study of Australia

The Gross Domestic Product of a country within a period of time, is usually composed of four major components, which can be seen with the help of the following expression:

GDP (Y) = C + I + G + NX

[Where, C is the personal consumption expenditure in the economy, I shows the business investment expenditure, G is the expenditure or purchases of the government of the country and NX denotes the net exports of the country, which in turn shows the value left after deducting the value of imports from the value of exports (X-M)]

GDP dynamics of Australia in the last five years

Each of these components are as follows:

C- The primary as well as the most significant component of GDP of any country is the personal consumption expenditure in the country, which in turn is spent in buying different goods and services in the country.

I- This shows the business investment expenditure of a country, which usually include the purchases which the companies make in the domestic boundaries in order to produce goods and services in the country. However, purchase for replacing any existing commodity is not counted in the GDP (Papell and Prodan 2012).

G- This component of the GDP of a country shows the total expenditures which are made by the government of the concerned country, which includes expenditures in the aspects of industry, public goods and services, infrastructural development and others.

NX- Exports add to the value of the GDP of the country while imports subtract from the same. The Net Exports of a country, thus shows the value which is left after deducting the total import value from the value of the total exports.

In this context, one of the most significantly developed economies across the globe over the years, has been the economy of Australia, whose growth and development can be seen in its robust GDP statistics (Mathur). The GDP of the country in 2017, can be seen to be 1.69 trillion AUD dollars and the country is also seen to be ranking fourteenth globally in terms of Nominal GDP and twentieth largest in terms of the PPP adjusted GDP in the global scenario and is counted as the second wealthiest nation in terms of per adult wealth, ranking just behind Switzerland, thereby appearing as one of the most dominant and significant economies in the global framework (Pocock, Charlesworth and Chapman 2013).

As is evident from the above figure, the consumption is the biggest component in the GDP of Australia, followed by the government expenditure and investment statistics.

GDP dynamics of Australia in the last five years

However, the GDP of Australia, in the last five years can be seen to be showing a considerably disappointing trait as can be seen from the following figure:

As is evident from the above figure, the GDP of the country in the last five years can be seen to be decreasing to a visible extent in the last five years.

The growth rate of GDP of a country measures the dynamics in the GDP trends in the country. In this context, the growth rate of GDP can be seen to experience considerable fluctuations in Australia in the last five years, both negative and positive. However, the growth rate of the same in the last five years cannot be seen to be crossing 1.1%, which is modest compared to that of the economic dynamics of the country (McLean 2012).

Unemployment dynamics of Australia

However, the GDP growth of the country does not sufficiently show the economic well-being of the population of the country, which in turn is measured better by the per capita GDP of the country, which in case of Australia is shown as follows:

Contradicting the dynamics of GDP, the per-capita GDP of the country is seen to be growing consistently over the last five years. To measure the growth in the real purchasing power of the population of the country, the purchasing power parity adjusted per capita GDP is taken into account, which in the case of Australia can be seen to be as follows:

This indicator, like that of the per-capita GDP of Australia, can also be seen to be showing impressively positive trend in the last five years, thereby indicating towards the increasing economic welfare and purchasing power of the population of the country (Gould 2013).

The economic growth of a country, though often related only to the growth dynamics of the GDP of the country, is a much broader phenomenon which has many other components than the GDP of the country. The economic growth of a country shows the overall development of the economy over time, which consists both the overall health of the economy as well as the well being of the population of the country.

Apart from GDP the other components which act as growth indicators for the economy of a country include the overall employment rate, the average price levels of the country, development of different business sectors, the economic abundance and purchasing and consumption power of the population of the country and many other indicators. Together these indicators and the dynamics in the same reflect towards the overall growth of the economy of a country. These indicators of economic growth are however also linked with one another and with the total productivity of goods and services in the country, which is measured by the growth in the GDP of the country (Mankiw 2014). The increase in the productivity of an economy, leads to increase in the GDP as well as increase in the employment opportunities and indicates towards the industrial development and trade dynamics of the country. This in turn leads to the creation of greater economic capacities of the population in the country, which in turn is reflected in their consumption pattern and also affects the aggregate demand and average price levels of the country, thereby contributing to the economic growth of the same (Agénor and Montiel 2015).

Consumption expenditure of Australia

Keeping the above discussion and assertions of the overall economic growth in the general framework in consideration, the growth of the economy of that of Australia, in the broad sense of the term is measured with the help of the other macroeconomic indicators apart from GDP and their dynamics in the country in the last five years.

One of the most important indicator of the economic growth of a country is the employment growth statistics of the country as it is directly linked to the productivity, economic prosperity and economic well being of the population of the country. Thus, a high unemployment rate has negative implications on the economic growth of the country and vice versa (Butlin 2013). Keeping this into consideration, the unemployment dynamics of Australia can be seen as follows:

As can be seen from the above figure, the unemployment rate of the Australia can be seen to have experienced considerable dynamics over the last five years. The unemployment rate of the country can be seen to be increasing from a considerably low rate in 2012, till nearly 6.3% in the end quarter of 2015. However, post that period the rate of unemployment can be seen to be decreasing in the last few years and can be seen to settling within the range of 5.4% to 5.6% in the last year (Hartwell 2017). This in turn indicates towards the fact that new jobs are getting created in the economy, which in turn can also be a reason behind the overall increase in the PPP adjusted growth rate of per capita GDP of Australia and all these indicate towards considerable growth in the economy of the country.

Another important indicator of economic growth of the country is the increase in the economic well-being of the population, in general, of the country. This can be seen from the growth in the consumption expenditure of the people in the country, which, in case of Australia can be seen to be as follows:

As can be seen from the above figure, over the last five years, the most significant component of the GDP of Australia, that is, the personal consumption expenditure of the country can be seen to be considerably increasing and showing an almost linear positive trait in the last five years, without any signal of negative fluctuation in the same period (Groenewegen and McFarlane 2014). This in turn indicates towards the increasing economic well-being of the general population of Australia, which in turn leads to the assertion of an increasing economic development of the country in the last few years.

The average price levels of the goods and services of a country also act as one of the primary indicators of economic growth of a country, which is indicated by the rate of inflation of the country. A very high level of inflation rate can be detrimental to the consumption and other attributes of the life of the population of the country as a whole, while a very low level of inflation can indicate towards less productivity and recessionary situation in the country. In this context, the inflation rate dynamics in the Australia can be seen as follows:

The rate of inflation, which remained considerably high till 2014, decreased substantially till 2016. However, the same has been to be increasing to some extent in the last year, though the rate remains within the moderate range of 2% to 2.2% in the recent years, which indicates towards a stable situation in the average price levels of the country in the recent period (Groenewegen and McFarlane 2014).

Thus, from the above discussion it can be seen that the economy of Australia, in the last five years have been showing more or less positive traits in its overall growth trend, in spite of disappointing trends in the GDP statistics as a whole.

One of the primary reason behind the stability in the economic growth dynamics of the country can be attributed to the robust government of the country and to the insightful economic policy and strategic framework of the country. The main components of the policy framework of the country can be seen as follows:

Stable economic policies- The fiscal as well as the monetary policies of the country have inherent stability components in them which enables the country to sail through any economic crisis and turmoil as can be seen to be evident during the times of the Global Financial Crisis, which affected nearly all the dominant economies in the world. Australia however managed to stay stable in this period.

Industrial policies- The policy framework of the country encourages development of industries and businesses. It plays the dual roles of bringing in foreign investors in the country and also of protecting the indigenous developing businesses by protecting and financially aiding them so that they can expand and become profitable (Fenna 2013).

Employment generation- The policy framework of the country focusses in creating new employment scopes, which is evident from the increase in the employment scopes by 300,000 new jobs, in the country in the last few years, which in turn also contributes to the high standard of living of the general population in the country (Corden 2012).

Deficit financing strategy- Australian economic policy has a strong deficit-financing and exit strategy and holds the deficit growth to 2% till surplus is generated.

Industrial Situation of the country (2012-2017)

The robust economic development of Australia can also be attributed to the prospering industrial and commercial aspects of the country, which have developed over decades. However, in the last few years, the industrial sector of Australia has been experiencing a shift from a booming manufacturing and basic industrial sector to an expanding service sector in the country over the last few years (Hakansson 2015).

In the last few years, the different service industries have been developing considerably along with a simultaneous shrinkage in the manufacturing and agricultural industries, which can be seen from the number of employment generated in the different sectors. This can be seen as follows:

This in turn can be attributed to the increase in the capital accumulation in the country over the last decade, along with the development of the skills and productivity of the working population in the country (Hakansson 2015). Together these have led to the creation of capital intensive service sector industries, which require high skilled labours and the shift of capital and labour forces from the manufacturing to the service sector industries in the country has led to the shrinkage of the basic manufacturing and subsistence agricultural industries in the country.

Conclusion

From the above discussion, it can be asserted that the economy of Australia, one of the most dynamic and dominant economies in the world, have been experiencing considerable dynamics in its economic growth patterns which can be seen from the performance of the different economic indicators in the country. While the GDP growth of the country in the last five years has not been impressive, however, the country seems to be performing impressively in the other economic indicators which in turn indicates towards positive growth trends in the economy, much of which can be attributed to the efficient economic policy frameworks of the government of the country. Apart from that the industrial sector of the country is also experiencing a visible shift from the manufacturing and agricultural sectors to an increasing and flourishing service sector over the last few years.

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