Activity 4d: Classification of spending in the GDP figures
- Consumption expenditure is the component of AD that refers to the spending by households and non-profit organisations supporting households on a range of goods and services. In contrast, Investment spending is undertaken by businesses and includes the purchase of new buildings, equipment and vehicles that will be utilised in the production process to further increase production levels. Consumption by households rarely adds to the nation’s productive capacity but investment helps expand the supply potential.
- The ABS would classify the purchase of a new taxi as an investment good because it is spending by a business on an asset that will be used to provide services in the future.
- The ABS classifies spending on new housing as an investment. Although households usually undertake this type of spending, the ABS classifies it as investment because it is an asset that will provide on-going accommodation services to those who live in it.
- An imported Mini Cooper by a household would firstly be recorded in the consumption section of AD. The household is unlikely to use the car to make further goods and services. The cost of importing the car will be deducted in the imports section so that the AD effect reflects the value added in Australia (the profit made by the car dealer would be the major component of this).
- Individuals, when talking about their investments, might include shares as part of their portfolio. However, the purchase of shares represents the transfer of ownership from one person to another and does not, it itself, represent the demand for (or production) of a new good or service. However, the service provided by the stockbroker (to facilitate the purchase of the shares) would be included in the calculation of GDP.