Applied Economics: Australian Bureau Of Statistics Essay

Question:

Discuss about the Applied Economics for Australian Bureau of Statistics.

Answer:

The AE is one of the known methods utilized in the computation of the total sum of all the economic activities in Australia economy otherwise known as the Gross Domestic Product (GDP). The GDP is significant since it is a measure of the economic growth and it is arrived at by calculation using the Aggregate Expenditure Model shown below which shows the graphing of the real-, potential GPD and the equilibrium point (Y*).

Introduction

Based on the data drawn from the Australian Bureau of Statistics (ABS), this paper seeks to undertake a deeper examination of the contribution of all the various components of aggregate expenditure in the Australian economy since 2009. Anchored on the same information, a keen consideration of where the Australian economy might presently be in the business cycle is made as well as a presentation of a comprehensive analysis premised on aggregate demand (AD) alongside aggregate supply (AS) is offered. Finally, a brief consideration of the policy implications of Australian economy position in the business cycle is also dispensed.

Understanding Components of Aggregate Expenditure (AE) in Australia

The components of AE in Australia comprise of household consumption, government purchase, net exports (exports-imports) and business investments. The consumption in this case is the household consumption over a given period while government purchase is the expenditure amount by government which comprises transfers and infrastructure that raise the total spending in the economy. The net exports is the total exports less the total imports. Business investment describes the purchase of real capital which is utilized in the production of its products and services (Makin, 2010). Even though many a great proportion of individuals regard investment as purchase of securities compromising stocks and bonds, this money is eventually utilized by companies in the production of commodities. Otherwise, financial instruments would never earn any ROI lest such cash is used to generate income from real services and goods.

The AE is the summation of total spending on the Australian economy’s total output, therefore, imports are deducted from exports as the amount spent on imported goods or services is the amount which is not spent on the output of the economy. The AE is, therefore, given by Consumption plus Investment plus Government purchases plus Net Exports (exports-imports). The equation for aggregate expenditure becomes Y=C+I+G+(X-M) = Gross Domestic Product (GDP).

Comparing Aggregate Expenditure to GDP

Discussing the Contributions of Each Component of AE

Household Consumption

The household consumption in Australia is headed by older individuals who have increased their share of total expenditure over the previous two decades depicting both an ageing population as well as arising average expenditure of the older individuals relative to the rest of the household. The spending in Australia is equally distributed relative to income crossways households as a result of older people’s ability to borrow as well as save concurrently. Nevertheless, the consumption disparity in Australian has been little altered notwithstanding a rise in income disparity over the recent decades.

Both disposable income and real per capita consumption in Australia have grown by a mean of close to two percent yearly right from the early 1980s. Nevertheless, the aggregate patterns can mask significant alterations in the spending and income distribution crossways households over time. The recently released ABS new distributional data on household income and consumption for the year 2009/10 integrated the household-level information drawn from the Household Expenditures Survey (HES) as well as the Survey of Income and Housing (SIH) for the first time with the aggregate data from the national accounts (Mankiw, 2010). The information published were consistent with the national accounts relating to household consumption and income distribution.

Government Spending

Government of Australia intervene in the economy to accomplish various policy outcomes such as dealing with market failures and improvement of social equity via redistribution of the resources. The Australian government uses the direct expenditure as a fundamental mechanism for policy implementation. The government of Australia uses a transparent spending framework which better allows the community to hold them accountable for their policies and decisions. The public expenditure and statistical discrepancy can be illustrated in the table below based on the consumption percentages.

Federal public

State and local

Federal public

State and public

Statistical discrepancy

GDP

Mar-2009

0.0

0.1

-0.1

-0.1

-1.0

0.8

Jun-2009

0.0

0.1

0.0

0.1

-0.4

0.7

Sep-2009

0.2

0.1

0.0

0.2

0.0

0.3

Dec-2009

0.2

0.1

0.2

0.3

0.0

0.9

From the above table, it is acknowledged that federal public investment negatively contributed to the total spending over the critical March 2009 quarter. This can be shown as -0.1. The total public expenditure arose consequently following the worst of the GFC had elapsed as a result of administrative delays in the implementation of infrastructure of the expenditure. The above figure indicates that the net contributions of consumption summing up to 0.4 percent was inadequate to counterbalance the negative contributions from the investment of 0.6% as remained inferior to the contribution from the net export of 2.1% (Reserve Bank of Australia, 2010).

The negative 0.1% indicates the statistical discrepancy between the GDP measured by Aggregate Expenditure and the GDP (A) measure in the March 2009 quarter being very vast by historical standards. Accordingly, there was an overstatement of measured expenditure compared to measured production. With the knowledge of magnitude of this discrepancy, a daunting doubt is cast regarding the vigorousness of the GDP (E) series from March quarter. Nonetheless, such a specific GDP series is critical to accomplishing the positive real GDP (A) outcome which validates the claim that Australia economy evaded recession at the particular time.

Business Investment

The above table also indicates that public investment by State and Local government adversely contributed to the aggregate expenditure in March 2009 quarters shown by -0.2.

Net Exports (Exports less Imports)

As witnessed in March 2009 quarters, it was clear that net export was the major contributor to the Australian GDP growth. The net exports detracted from real spending growth in quarters prior to and following the GFC struck. The explanation for this strong net Australian export outcome is the sustained real exchange rate depreciation of more than twenty-five percent in trade weighted terms during the March 2009. Such a depreciation resulted to a cheap export sustainability for the overseas buyers whereas the imports became expensive for the local consumers. A sustained demand for goods and services from known Asian Australian partners including China over the same period.

Business Cycle

The business cycle is a key factor of the government spending as stabilize function of the business cycle raises the government spending to offset losses in the AE. For instance, the creation of the new government infrastructure projections during the troughs or the downturns. The automatic changes as a result of business cycles will automatically dictate the levels of government spending in certain areas. The low economic activity such as troughs and downturns contribute to increased levels of unemployment leading to higher government spending on social security and welfare besides more funding being needed for augmented pressures on the public facilities like public hospitals as well as public education systems.

To examine the state of the Australian economy in the business cycle, we can start by look at the unemployment rate. This rate has risen slowly over the past couple of years to a degree which is high compared to its recent history. There is ae consistent with the below-trend growth of economic activities over the period. The growth of this trading period is probably to remain below the trend. Nevertheless, the forecast indicates growth will pick-up slowly to an above-trend speed this year. Signs exist indicating better growth in certain parts of the non-mining economy, which is supported by the low degree of rates of interest.

When the economic activity is being measured, a keen attention is focused on the aggregate GDP which is relevant provided that it is a detailed measure of the activity from the national accounts. The records of the June quarter as reflected in the national accounts recognized a rise in GDP growth over the previous financial year to a speed which was close to trend.

March Qtr to June Qtr 2016

% change

June Qtr 2015 to June Qtr 2016

GDP Chain Volume:

Trend

Seasonally adjusted

0.7

0.5

3.1

Final consumption spending (chain volume measure)

Trend

Seasonally adjusted

0.8

0.8

3.2

3.2

Gross fixed capital formation (chain volume measure)

Trend

Seasonally adjusted

-

-

-3.4

-4.5

GDP chain price index:

Original

0.9

0.3

Terms of Trade:

Seasonally adjusted

2.3

-5.4

Real net national disposable income

Trend

Seasonally adjusted

1.0

0.6

2.1

2.3

Nevertheless, the latest annual national accounts data released integrated a downturn revision to the GDP growth to 2.5 percent in the year-average terms for 2013/2014. Such a rate was similar to the previous year but a bit below trend as well as being aligned to the projections. It was noted that the origin of such a downturn revision remained less growth of export volumes compared to the previous estimations despite export growth still remaining strong.

Examining latest quarters, the assessment of a wide range of timely indicators of activity shows that there is a maintained moderate pace of growth witnessed in the June quarter which was 0.5 percent in accordance with the quarterly national accounts. The implication or suggestion of this in general is that growth has remained below trend for the previous two years and even more.

When the measure of mining as well as non- mining activity is examined, the underlying trend of growth of aggregate economic activity cab be ascertained. Some significant discrepancies crossways the mining as well as non-mining sectors have been noted. Such differences are appropriate to comprehending the present state of the business cycle as well as the prospects for the Australian economy growth (Australian Bureau of Statistics).


The economy of Australia is well known to be in the midst of the transition from the investment stage to the production stage of the resource boom. The mining investment gas been diminishing for about two annum now. Concurrently, exports of resources have arose essentially as investment projects hit completion. Continued rise in export volumes remain in prospect, especially as liquefied natural gas projects start to ramp up production.

Nevertheless, due to the production stage of the boom requiring much less labor compared to investment stage, this transition remain freeing up labor from the resource as well as resource-associated activities. With this recognition at hand, there is a sense to consider the GDP growth without resource exports which has picked up over 2013/2014. However, it still remain below its historical mean. This depicts the diminishing mining investment and hence the mining investment is set to decrease rapidly in the future.

Based on the household consumption at this business cycle phase, it is natural to get worried regarding the possibility that consumption will be weighed downwards by the gradual growth in household incomes, propelled consequently by the subdued state of the labor market (Abel, Bernanke and Croushore, 2007). It is rational to say that stronger growth of employment as well as wages would give more support for the consumption. Nonetheless, such a dynamic always kicks in later in the business cycle.

Meanwhile, it is reasonable to anticipate that a low rate of interest will guarantee and encourage households to shift certain spending from the upcoming to present including through higher prices of assets. Accordingly, a decline in the disposable income share saved by household will be witnessed through a lower ration of saving.

References

Abel, A., Bernanke, B. and Croushore, D. (2007) Macroeconomics 6th ed Addison Wesley, New York.

Australian Bureau of Statistics, Australian National Accounts: Concepts, Sources and Methods, Catalogue 5216,

Australian Bureau of Statistics, Australian National Accounts: National Income, Product and Expenditure, Catalogue 5306,

Makin, A. (2010) “How Should Macroeconomic Policy Respond to Foreign Financial Crises?” Economic Papers 29(2), 1-10.

Mankiw, G. (2010) Macroeconomics, 7th ed, Worth, New York.

Reserve Bank of Australia (2010) Statistical Tables.Available at

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