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.