Components of Aggregate Expenditure
Economics (Year 11) - Introduction to Macroeconomics
The consumption sector of aggregate expenditure refers to the spending level of households. It is known for being a reasonably stable component that usually constructs around 57% ($1050 billion) of the Australian economy. Consumption is measured by households purchases of:
Expenditure of non-durable goods: These goods are consumed within three years of purchasing. For instance, food or clothing goods.
Expenditure on durable goods: These goods last over three years. They include white/brown goods such as refrigerators and furniture.
Expenditure on services: Services such as lawn-mowing, house restoration etc.
Investment is defined as expenditure on producer and capital goods that can be used to produce final goods and services in the future. It is the most volatile element of aggregate expenditure as it swings between 16-23% of GDP. This is because it is money spend on expansion for the future, and therefore, it involves a certain element of risk. In 2018 to 2019, investment constructed 18% of GDP.
Government Spending includes federal, state and local spending on goods and services and capital investment (Infrastructure.) It accounts for about 23% of GDP, with Federal spending constructing the largest component.
Total spending is measured by governments expenditure on both:
Current expenditure: this provides for day to day functions.
Capital expenditure: this provide for future needs, for example, schools, roads or power.
It is defined as the total value of goods and services sold overseas subtract the value of goods and services brought from overseas. In simpler terms, net exports are measured by calculating the total exports and then subtracting the total imports. It is an extremely volatile (unstable) sector and can swing between -3 – 5% of GDP.