Expenditure Approach For Australia and China

Question: Discuss about theExpenditure Approach For Australia and China. Answer: Introduction The expenditure approach is also referred to as the Gross Domestic Product method which is used in determining the economic status of a country, its total productivity of the goods and services and its growth and development. The GDP is used to calculate the Gross Domestic Product of a country by using three components: the domestic consumption of the people living there, investments by both the government and the private sectors or organizations, government consumption or expenditure of the government on its citizens and net exports which refers to the difference between the imports and the exports of the country (Landefeld et al, 2008). Apparently, this is one of the most widely used approaches that are being used by countries in their estimation of economic growth. This means that these factors are also able to affect the rate of economic growth and development of a country. This report is going to give an explanation of these components and show how they influenced the economy of Australia and China in the year 2014, 2015 and 2016. Household Consumption This is simply the total consumption of all the citizens living in the country. It consists of the total private expenditures i.e. the household expenditures. Apparently, it is the largest components of all the other three which means that it covers the largest percentage of the total GDP of a country (Jacobs et al, 2011). These expenses may include the payment of rent, costs incurred in purchasing jewelry, food, machines, among other things. In the year 2014, the household consumption was 3%, 2015 it decreased to 2.9% and in 2016 it increased to 3% which contributed to 1.6% increase of the total GDP. All these percentages are out of the total GDP of Australia. Between the year 2014 and 2015 the consumption in China accounted for 64.6% and in 2014-2015 it accounted for 66.4% of total GDP. This caused an increase of the GDP in general for the country (Morrison, 2014). Government Expenditure This is the spending the government spends or incurs during the provision of goods and services to its citizens. It includes the costs that it incurs in security and finalizing of the goods and services provision (Clements et al, 2013). These expenses may include things like purchases of the military weapons and other materials needed for security purposes, the payment of salaries and wages to the public servants, infrastructure development in the country, provision of health services by building hospitals and dispensaries, pension payments to the retired public servants, education system support to name just but a few. In the year 2014, the Australian government consumption was 0.5%, 2015 and 2016 it increased to 3.8% of the total GDP contributing to 0.7% points of the total GDP growth and development change ((Rees et al, 2014). This increases the total GDP of Australia in general and especially for specific years. The government expenditure for China increased by 18.7% between the year 2015 and 2016 and by 10.9% between the year 2014 and 2015. Investments This is the investments that the country and as well as the private sectors invest in any asset or project for future returns or profits. The investment can be termed as investment only when it is able to earn the returns. However, if it does not earn or bring about any returns at the end of the period, it is not to be considered as an investment (Kishor et al, 2012). The investments can be things like, buying of bonds or treasury bills by and organization of an individual, buying of shares by an organization or individual among others. The private investments for Australia decreased by 2.4% in 2014-2015 and 5.2% in 2015-2016 which gives a total decrease of 1.1%. This means that the decrease will certainly affect the total GDP of Australia for the specific years. The investments for China decreased by 3.1% between the year 2015 and 2016 and by 10.1 between the year 2014 and 2015. Net Exports This refers to the difference between the imports of a country and the exports. If net exports is positive, then it means that the country exported more than the imports ad if it is negative, the imports were more than the exports and therefore causing a change in balance of payment. When the exports are more, the country is in a better position economically and therefore can grow and develop itself at a faster rate than when the imports are more which means that the country is producing less than it can consume and so it has to import (Clements et al, 2010). Between the years 2015 and 2016 the net exports of Australia increased by 1.2% which meant that the total GDP would increase as well. The net exports for China decreased by 0.9% between the year 2015 and 2016 and by 7% between 2014 and 2015. Conclusion In conclusion, the GDP of a country is contributed by the four main components of the Expenditure approach method. From the information give, it is clear that the GDP for Australia is less compared to that of China. This is generally when we consider the four components of the approach and sum all of them up. In general the GDP for Australia in the year 2014 was $1454.68billion and 2015 was $1339.54billion and $1410billion in 2016. The total GDP of the country was fluctuating with years but still it targeted higher value for the coming years like 2017. On the other hand, the GDP for China was $10482.37 billion in the year 2014, $11007.72 billion in 2015 and remained the same even in 2016. Its GDP was increasing gradually as the years pass and still having high targets for the years to come. This is actually shown by the graphs below for the years 2014, 2015 and 2016 total gross domestic products for both countries. Refernces Morrison, W. M. (2014). China's economic rise: history, trends, challenges, and implications for the United States.Current Politics and Economics of Northern and Western Asia,23(4), 493. Rees, D., Lancaster, D., Finlay, R. (2014).A state-space approach to Australian GDP measurement. Reserve Bank of Australia. Landefeld, S. J., Seskin, E. P., Fraumeni, B. M. (2008). Taking the pulse of the economy: Measuring GDP.The Journal of Economic Perspectives,22(2), 193-193. Jacobs, J. P., Van Norden, S. (2011). Modeling data revisions: Measurement error and dynamics of true values.Journal of Econometrics,161(2), 101-109. Clements, M. P., Galvo, A. B. (2013). Forecasting with vector autoregressive models of data vintages: US output growth and inflation.International Journal of Forecasting,29(4), 698-714. Kishor, N. K., Koenig, E. F. (2012). 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