Online Tutoring on Australian Economy

  1. Introduction

Australia is one of the advanced economies of the world. GDP (Gross Domestic Product) determines the monetary worth of a country. It is the total value of the goods and services that an economy produces during a given time period. There are four components of GDP such as private consumption, business investment, and government spending and net exports. Australia is a country with most of its GDP derived from consumption of population. This indicates that people spend more money on goods and service than to save it. The saving ratio per household is lower in the country, which depicts the high living standard of people. Economic growth refers to the development or increase in per capita income. It can be positive growth, negative or zero economic growth. Australia experiences continuous growth in its economy due to the increase in exports and reduction in business investments in housing and mining sector. The GDP declined to its lowest level in 2016 due to weather related factor but has picked u now. It is expected to rise to 2.8% in 2019 as indicated by OECD summary. Moreover, IMF forecast it to rise to 2.9% and RBA to 3.1% during the same year (Tang, 2017). It can be deduced from the data and information suggested by academics that Australia achieved continuous economic growth during the past 5 years except in 2016. It indicates that the country has seen sporadic trend but there are hints that the growth was improving smoothly. The following essay discusses the GDP (Gross Domestic Product) and the economic growth rate in detail. It further analyses the trend of production of goods and services in the country. Meanwhile, it discusses the positive future outlook of the country and the risks and uncertainty involved with it. The following essay analyses the GDP and economic growth rate of Australia over the past 5 years in detail.

 

  1. Analysis of Australia economy

    • GDP (Gross Domestic Product)

GDP stands for gross domestic product. It calculates the worth of final products that are bought and used by the end consumer in a given year. It takes into account the output that is generated by a country within its border. Alternatively, GNP, the gross national product is the output produced by the residents of a country. Let’s suppose if a company of London is in Australia then it will be included in the Australia GDP, but in UK GNP. There are several other activities, which are not included in the GDP of a country such as the black market activities and the unpaid work. It means, for example, that if a baker bakes bread for a customer, it will be included in the GDP but will not add to the GDP if he does it for his family.

According to Daley (2011), GDP (Gross Domestic Product) is measured by a statistical agency of a country, which gathers the information from plethora of different sources. Most countries use the international standards in calculating GDP as mention in the System of National Accounts, 1993, accumulated by the World Bank, International Monetary Fund and the European Commission. It is a question of concern that what does the GDP depict about a country? It is a measure of overall standard of a country. Though it takes into the account the changes in GDP, which determines whether the citizens are better or worse off, but it does not capture important things such as external costs (environmental damage or noise from factories).

 

  • Components of GDP

There are four components of GDP such as consumption, investment, government spending and net exports. The components explain what the country is good at producing. It is because GDP determines the total production of goods and services in a country for each year. It is equal to what the country population spends it in that economy.

 

  • Consumption

Consumer expenditure is the spending of consumer on goods and service that they directly use it. Around 70% of the GDP of Australia is spent on consumer expenditure. Goods are tangible products such as food items, cars, and appliances, which an individual uses for his day-to-day needs. Services are intangible products that cannot be touched or seen such as hotel services, education and etc. Spending 70% of GDP on Consumer expenditure depicts the living standard of Australia that is high. People tend to spend more on goods and services than to save it for future unexpected events (World Bank, 2014).

 

  • Investment

Investment is what a business spends on to produce goods and services for consumers. It is the machines and equipment that is used in the factory or production facility. In 2017, the business investments were worth $2 trillion, which becomes 18% of GDP. During the global financial crisis, Australia lost around $654 billion in housing. Housing contribution to GDP plummeted steeply during that time (Spiller, Rawnsley, 2012).

 

  • Government Spending

Government spending is the amount of money that government spends on the development related projects in an economy. It is the spending on services such as building roads, constructing public places, defense, education, healthcare and etc. Australia spends about 15% of the GDP on the development related projects (Wells, 2007). That is why it is one of the developed nations of the world.

 

  • Net exports (Exports – Imports)

Export refers to the goods that a country sends to other countries and import refers to the goods that it procures from other foreign countries. Net export is the total exports minus total imports. Negative value in net exports is termed as trade deficit while positive value is called trade surplus.

It can be evaluated from the above discussion that Australia is a country that acquires most of its GDP from personal consumer expenditure component. It is because the living standards are high in the country so people tend to spend income on goods and services. Due to varied nature of product choices and tastes, large amount of money is spent on consumer goods and services.

 

  • What is economic growth?

Economic growth is referred to as the development or increase in the national income per capita of a country. It includes, but is not limited to, GDP (Gross Domestic Product), GNP (Gross National Product) and NI (National Income). Compared to development that determines the increase in living standard of citizens, economic growth determines the ascendance of GDP per capita. Economic growth takes three patterns. It can either positive, negative or zero. Positive economic growth can be observed when the macro economic indicators of an economy are increasing faster than the growth of population. Likewise, the negative economic growth depicts the increase in macro economic indicators at a slower pace than the increase in population.

Economic growth can be achieved by using the available resources efficiently and by increasing the production capacity of a country. It helps in redistributing the incomes of a country among the population. When a country experiences a high economic growth rate, the rate of production of goods and services increase and likewise the unemployment rate starts to fall as people start finding jobs. It thus adds to the living standard of the country.