Aggregate Expenditure

Question 1

what is GDP

Answer 1

gross domestic product - the total market value of all final goods and services produced in a company during a year

Question 2

what are the 3 approaches to measuring GDP (explain the last)

Answer 2

1. the income and earning approach
2. the expenditure approach
3. the production approach (value of all g/s produced is calculated)

Question 3

explain the income and earning approach

Answer 3

all incomes recieved are added (national income), allowing for depreciation of capital equipment and net indirect taxes

Question 4

explain the expenditure approach

Answer 4

the addition of all final expenditures (AE), changes in stocks held by firms and net exports (X - M)

Question 5

Exp Approach: what is aggregate expenditure aka total expenditure

Answer 5

the total planned spending on final goods and services on final goods produced by the 4 major sectors of the economy

Question 6

Exp Approach: what are the 2 AE equation

Answer 6

AE = C + I + G + (X-M)
AE = C + i + G1 + G2 + (X - M)
sometimes gov spending is split into current (G1) and capital (G2) components

Question 7

How much did the 2018/19 Australia GDP amount too and what was the largest component (% and $)

Answer 7

nearly $1.85trillion

the largest component was consumption expenditure (57% = $1050 billion)

Question 8

What are the 3 types of consumption expenditure (C)

Answer 8

1. expenditure on non durable goods (food and clothing - consumed up to 3 years after purchase)
2. expenditure on services (non commodity -plumbers)
3. expenditure on consumer durables (discretionary items that provide satisfaction for 3+ years like cars/furniture/white goods etc)

Question 9

what percentage of agg consumption does each type of consumption expenditure take up (stable or influenced?)

Answer 9

non durable - 30% influenced by economy
services - 60% influenced by economy
durables - 10% stable

Question 10

what is gross private investment (I)

Answer 10

business expenditure on new capital equipment which will produce final goods and services in the future (machines/tools/factories/transport) also includes exp on new buildings and factory

Question 11

explain how much priv investment accounts for of GDP and why it is so volatile

Answer 11

accounts for 18.7% of 18/19 Aud GDP
it is the most volatile element of AE because over the last 50 years, private sector investment has account for between 16% and 23% of GDP

Question 12

what are the 3 examples of investment

Answer 12

fixed investment - privately funded expenditure on equipment and structures used in production
residential fixed investment - private exp on housing
changes in businesses inventories - stocks of goods that have been produced but not yet sold

Question 13

what are the 2 types of gov expenditure and how much of GDP does it account for

Answer 13

G1 - current exp which produces for day to day function of government
G2 - capital exp to provide for future needs (schools, roads
23% of GDP

Question 14

describe next exports and how much of GDP it accounts for

Answer 14

X - The value of goods and services sold to overseas MINUS M - The value of goods and services bought from overseas
Account for between -3% and 5% of GDP (imports exceed exports in some years)