Macroeconomic Policy

Malaysia Macroeconomic Policy Goals

Explain the three policy objectives Malaysia's macroeconomic fundamentals. [6]

Three macroeconomic policy objectives are:

1. Reached a level of full employment


• Level achieved full employment when unemployment is less than 5%, which is only frictional unemployment occurs only in the economy.
  
• In this situation, economic activities will increase because of factors of production are fully utilized.
  
• Increased national output and an increase in economic growth.
  
• When full employment is reached, the real GDP equal to potential GDP.


2. General price-level stability


• The stability of general price level means that the economy is not facing rising prices or falling prices of less than 4%.
  
• The purchasing power of consumers to be more stable and will improve living standards and social welfare.
  
• Increased economic activity due to low inflation and there is stability in the market rate of interest.


3. Enhancing economic growth


• Economic growth means increasing economic activity.
  
• This will increase employment and reduce unemployment.
  
• Next, the standard of living and increased social welfare

Macroeconomic Policy Goals

Achieving Full Employment Rate

Full employment, refer to:

1. situation where unemployment is minimal and the total income is high.
2. situation where unemployment is at a very low level, less than 4%.
3. situation where all factors of production used.

Achievement of full employment levels mean:

1. national product will reach the maximum level.
2. welfare will reach the maximum level
3. Economic resources are used efficiently and no unemployment.

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Maintaining Stability of General Price Level

General price level should be at the level remained stable and inflation low and under control.

Price increases or inflation:

1. reduce real income / affect the purchasing power of money.
2. affect exports.
3. affect economic growth.
4. decrease the level of social welfare.

Falling prices or deflation:

1. affect investment levels.

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Achieving Sustainable Economic Growth

Economic growth showed an increase in real GDP. Economic growth necessary to achieve satisfactory rates from year to year to maintain positive economic growth.

Significance:

• improve the welfare of the population,
• creating employment opportunities,
• combat unemployment,
• reflects the effectiveness of government economic policy.

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Repairing the Balance of Payments

The balance of payments improved by increasing exports and reducing imports.

The balance of payments surplus / positive / improved:

1. promote economic growth.
2. improve a country's foreign exchange reserves.

The balance of payments deficit / negative / declining:

1. reduce economic growth.

Form of Macroeconomic Policy

Demand side policies

Government policies affect aggregate demand in the country through:

Fiscal Policy (Fiscal Policy)

Fiscal policy is the government's measures to change the structure of government spending and taxation to affect the level of aggregate spending in the economy.

Fiscal policy aimed at achieving full employment level and inflation.

During inflation, the government will malaksanakan contracting fiscal policy, namely to increase tax rates and reduce government spending to reduce aggregate expenditure to overcome the problem of inflation.

While the problem of deflation (recession), the government will implement expansionary fiscal policies, the government's move to add spending and reduce taxes to increase aggregate spending to combat unemployment.

Fiscal policy is the policy of the government's discretion to change taxes and government spending.

For example, to increase aggregate demand, the government to reduce taxes and increase government spending.

Monetary Policy (Monetary Policy)

Government's financial policy is the policy conducted by the Central Bank to control money supply and interest rates to influence aggregate spending levels to achieve the level of employment and control inflation.

During inflation, the Central Bank will conduct monetary policy to contract, which reduces the money supply and raise interest rates to reduce aggregate expenditure to overcome the problem of inflation.

During the recession or deflation, the government will carry out financial policies to expand, the increasing money supply and reducing interest rates in the market to increase aggregate spending to combat unemployment.

Direct Control Policy

Direct control policies is a direct government controls on prices, wages, exports and imports to improve the balance of payments and inflation.

For example, the government may impose a maximum price controls on goods of certain controls to overcome inflation.

Supply side policies

Supply side policies are government policies that affect economic activity on the supply side by increasing the production capacity of the economy.

Policy means the supply of government policy through the tax and investment incentives are trying to increase production capacity in the economy to increase the supply of aggregates and achieve economic growth without inflation. For example, economic growth can be improved by encouraging more people to engage in certain production activities.

Examples of supply side policies is the tax exemption incentive to producers and a decline in import duties on production inputs. Both of these policies will increase the supply of aggregates. As a result, prices declined and incomes rose.

Indicator / Variable Macroeconomics

National Income / Gross National

National Income

National income is the total factor income received by a country for a year. It covers the rent, net of interest, wages, profits, and income of private enterprises.

Gross National

National output is the total value of final goods and services produced by a country within a year. It is a tool to measure the performance of economic activity.

Significance of Study of Income / Gross National

Standard of living indicators.

Indicators of economic growth.

Indication of the effectiveness of government economic policy.

It is a tool to measure the performance of economic activity.

Provides an overview of

• conditions of employment opportunities
• how the factors of production
• unemployment
• levels of welfare and standard of living.

Enabling economic planning unit to take follow-up actions.

Employment and Unemployment

Labor

Total population in working age 15-64 years who are working or are actively seeking employment. Excludes homemakers and SPM / STPM because they do not actively working or actively seeking work.

Labour Force Rate = (Total Labour Force / Total Population) x 100%

Labour Force Growth Rate = [(Labour New Labour - Labour Force Original) / Labour Force Original] x 100%

Employment

Employment is the labor involved in economic activities to produce goods and services.

Employment is the total labor force is unemployed.

Employment is the total labor force that is used productively in the country's output.

For example, the total labor force was 1.2 million people, so if just 1 million get jobs, this means that employment is of a million people.

Employment = Labour Force - Total Unemployed

Increase employment means

1. Number of unemployed decreased.
2. National Income / Gross National rose.
3. Living standard of the people rose etc.

Employment Rate = (Employment / Labour Force) x 100%

Employment Growth Rate = [(Employment Development - Employment Original) / Original Employment] x 100%

Employment significant increase in rates

1. The unemployment rate declined.
2. Increasing economic achievements.

Unemployment

Unemployment is the labor force who want and are willing to work but have not yet found a job.

Economic problems in which a number of labor willing to work does not get a job.

The causes of unemployment:

1. Replacement of labor with machines.
2. industrial backwardness.
3. economic recession, etc..

Total Unemployed

Total unemployment is the total labor force willing to work but not seeking employment.

For example, the total labor force was 1.2 million people, so if only 1 million people employed, this means that the number of unemployed amounted to 0.2 million people.

Unemployment Rate

The unemployment rate is the rate per cent of the total labor force is employed to total labor force.

For example, if the total labor force was 1.2 million and the number of unemployed was 0.2 million people, this means that the unemployment rate is 16.7%.

Unemployment Rate = (Number of Unemployed / Labour Force) x 100%

Decrease the unemployment rate means

1. rate of employment increased
2. national income / output of the country increased
3. increased economic performance.

Economy to achieve full employment when the unemployment rate at 4% or less. While full employment, a large number of unemployment only in the form of frictional unemployment.

Research Interests Employment / Unemployment

1. Ensure supply of adequate skilled labor to the ever increasing national productivity.
2. Increase the national output / income countries and thus increase economic growth.
3. Increasing income per capita and increase the prosperity of society and the welfare of the population.

Inflation

Inflation Definition

Inflation is the increase in general price level of goods and services occurs as a whole and continuous.

The inflation rate determines the general price level stability measurements.

General price is the average price of all goods and services in the market in the country.

Causes of Inflation:

1. excess of current expenditure in the economy with full employment.
2. increased costs of production.
3. higher import prices.

The effect of inflation on the economy:

1. Raise the price of export goods.
2. Decrease the purchasing power of money.
3. The decrease standards of living.
4. Individual real income decline.
5. Increase the cost of living.

Inflation and Consumer Price Index

1. The consumer price index (IH) measures the general price level.
2. IH for the base year (year comparison basis) set as 100. If new = 105 IH-year, inflation
   = [(IH New Year - IH in the original) / IH in the original] x 100%
   = 5 / 100 x 100%
   = 5%.

Inflation Research Interests

1. Measure the general price level stability.
2. Measuring changes in living costs.

Balance of Payments

Balance of payments is a record of the financial statements the value of all transactions and money flows between countries in one year. It is a tool to measure the state of foreign trade.

The financial statements of all transactions and capital flows between countries with the rest of the year.

Balance of Payments Current Account Balance = Balance + Finance + Errors and Omissions

Importance of Balance of Payments Survey

Favorable balance of payments surplus in the country

• increase the country's foreign exchange reserves.

Decrease (deficit) balance of payments loss to the country because:

• reduce the country's foreign exchange reserves.
• affect the stability of currency values.
• reduce the country's economic activity.

The government had to intervene in the economy through direct control, etc..

Economic Growth

Economic growth is the physical form of economic development such as increased output of goods and services, increase infrastructure and other economic development. It is a tool to measure the performance of national development.

Economic growth is an increase in economic activities that lead to product (GDP) in the economy.

GDP is the value of goods and services produced within a country according to fixed prices in the base year.

Measuring the economic development of physical performance such as the increase in output of manufactured goods, infrastructure development, etc. The number of schools.

Economic growth = [new-year real GDP - real GDP in the original) / real GDP in the original] x 100% (a more appropriate measurement for an increase of output in the country) or

Economic growth = [GNP is the new year - real GDP in the original) / GNP is in the original] x 100% (measurement that is not suitable for including the increase in output abroad)

Economic growth is calculated as a fixed price basis in order to avoid the influence of inflation.

Importance of the Study of Economic Growth

Create more new jobs to the increasing population.

Growth of Welfare

1. The increase in living standards.
2. Increased when the Per Capita Income (PPK) is increased (when the increase in national income is exceeding population growth).
3. PPK is the average income in a country's population according to fixed prices in the base year.
4. Welfare Growth = [(PPK is a new year - PPK is in the original) / PPK is in the original] x 100%

Importance of Growth in Welfare Studies

1. Economic growth is not necessarily followed by the growth of welfare / rising standard of living of the population because the percentage increase may exceed the percentage increase in real GDP, the standard of living does not rise but fall.
2. In addition, economic growth is only taking into account the increase in output (GDP) without regard to other factors that can determine the composition of the living standards of such products, income distribution, and negative externalities.

The concept of Microeconomics

Microeconomics is defined as an economically focused studies on the economic activities carried out by small units in the economy.

Microeconomic studies made on the economic activities carried out by individuals, firms, and government, for example, a study on the effect of higher individual income on individual demand and rising prices on the bidding firm.

In general, the study covers microeconomic price theory, theory of supply and demand, production theory, market theory and the theory of distribution.

Topics Macroeconomics

Topics Macroeconomics

• Chapter 1: Macroeconomic Analysis and Variable
• Chapter 2: National Income Accounting
• Chapter 3: Determination of Equilibrium National Income
• Chapter 4: The Role of Money in the Economy
• Chapter 5: The Macroeconomics and Stabilization Policy
• Chapter 6: International Trade and Finance
• Chapter 7: Economic Growth
  

Learning Objectives Chapter 1

Learning Objectives Chapter 1

Definition and scope of macroeconomic analysis

Explain the concept of macroeconomic and microeconomic distinguish between the areas of macroeconomic research.

Indicators / Macroeconomic Variables

Explain briefly the national income / national output, employment and unemployment, inflation, balance of payments and economic growth.

Shows the importance of guidance on the data of the Malaysian economy.

Macroeconomic Policy

Macroeconomic Policy Goals
Describing the desired outcome: Rate of full employment, price level stability, improve balance of payments, enhance economic growth.

Form of Macroeconomic Policy
Briefly explain the following policies:

Demand Side Policy: Fiscal Policy, Monetary Policy, the Direct Control.

Supply Side Policy: Changes in income tax, tax reduction of imported inputs, fiscal incentives / investment incentives, incentives for research and development (R & D).