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Diploma in Business Administration
Macroeconomics 3ECO0904N
Assignment
Lecturer: Mr Balu Ramoo
NAME STUDENT ID
BOON SHU TING SCPG 1700180
CALVIN LOR KAI FENG SCPG 1700293
CHEAH KAR WAI SCPG 1700361
KOAY JIA HAO SCPG 1700333
OOI JIE ROU SCPG 1700345
Introduction
Macroeconomics is the study of the achievement of the national economy .In short, it studies the economy as a whole. The 4 main goal of government of a country is to increase the economic growth of a country, to reduce the rate of unemployment, to achieve low inflation rate and to surplus the balance of payment. On the flip side of the coin, if the government cannot achieve this goal, it may affect a country economy. Thus, this assignment contains four economic issue which is GDP (economic growth), unemployment, and inflation and lastly is exchange rate.
GDP or Growth rate
The economic growth for Malaysia in the second quarter is at 4.5% which was below the estimation of more than 5%. According to Bank Negara Malaysia, the cause of slow economic growth is due to supply disruptions. In the same quarter of year 2017 the GDP growth was 5.8% and 5.4% in the first quarter of 2018. Breakdown into the economic activity shows that the manufacturing and constructions sector shows positive sign in the second quarter while the agriculture and mining sector goes decline in the second quarter. The result showed an improvement in all services sector in second quarter of 2018(6.5%) compare to second quarter of 2017(6.3%).
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In the manufacturing sector 4.9% was recorded, it dropped 1.1% from 6% compare to 2017. On the other hand, mining dropped 2.2% while in second quarter 2017 there was a 0.1% expansion. Construction sector also showed a point drop of 3.6% from 8.3% in second quarter 2017 to 4.7% second quarter 2018. The sector that showed the most significant decline is agriculture sector, it goes from an expansion of 5.9% to contraction of 2.5% at second quarter 2018.
The reason for mining sector growth to drop is mainly due to unplanned supply outages. On agriculture sector the main reason for the contraction is due to production constraints and adverse weather condition. The decline of inflation in Q2 is 1.3% and it is mainly affecting the 0% GST rate which was set by the new government.
The economic was declining a lot when the old government dissolute the parliament for the upcoming election on May 9.
Central bank has stated that all the private sectors will maintain the growth of economic in Malaysia.
It is expected that the inflation will turn back to normal with the changes of tax policy by government. While the current inflation will still be stable due to the help of private sector spending.
Malaysia normally used 2 approaches to measure GDP out of 3 approaches such as output and expenditure approach. According to this article, it uses output approach to measure the GDP of Malaysia. In the calculation, it only includes the money value of the final goods and services. To prevent double counting, they need to subtract the value of intermediate goods and value of raw materials from the value of gross domestic product. The gross domestic product (GDP) of Malaysia is contributed by the three sectors such as primary sector. Primary sector include the mining and agriculture. Next is the secondary sector which is construction and manufacturing. The last sector is tertiary sectors which include government services and many others. The ways to get the Gross Domestic Product (GDP) is to added up all the final goods of these three sectors under this output approach.
Unemployment
The rate of global youth unemployment is much higher than the global unemployment. An individual who is unemployed at the age of 15 to 24 is known as youth unemployment. Youth unemployment in Malaysia will be pressure by the structural shifts. Next, many of the youth are unable to find a right employment may lead high youth unemployment to occur. There is a disadvantage such as harder time searching employment for the youth who is entering the labour force for the first time compared to an adult which is lots of experiences. The youth will be the “last in” if there is a surplus labour occurs for competing for restricted jobs. There are many young people in different countries finds work through an informal placement method such as by the word-of-mouth from the family and friends. This will be causing them lacks job search experience and labour market information as adults they find their own job from their colleague. In short, an adult can easily to meet a “right people”. A youth might take a longer period to “look around” for a right job to suits their own necessity. Some of the youth may simply to take a job that is available regardless of the working environment due to they cannot afford to be unemployed. The lack of mobility will also add pressure on the youth employment.
In spite of decreasing the unemployment rate among the youth the major solution is the education system should be restructured. Schools should be more concern on the three “Rs” such a reading, riting and rithmetic. A great value and importance will be distributed by the three “Rs” to the labour force. To prepare the graduates for the market needs, the tertiary education should provide them with good communication skills, a well-developing self-esteem and industrial training. They also include basic business ethics such as the three “Rs” as their central point. As a result, the entry-level requirements and demand for higher certifications will be raised. Certainly, youth should be fostered with the entrepreneurship. It acts as frameworks to build an entrepreneurial thinking. On the other hand, the employment tax incentive will be an attainable manner to persuade the youth in labour market. Policies also become the main aspect that a helping business improves and employ youths are vital. Lastly, level of the education should be changed across by the institute to ensure that a right person can be placed in a right job.
According to this article, it is more focus on structural unemployment. For an example, a person has a job to offer but they do not have a right skill on that particular job. Normally it is a short-term unemployment which is between not more than 6 months. But if the youth did not improve their skill, it may lead to long-term unemployment which is more than 6 months. As a result, the output gap is very far to each other. (Figure 1). To close the gap, governments need to increase the AD by expansionary fiscal policy in order to promote employment. The government implements the project to the firm. Then the firms need to hire more people to work with them. Thus the Ye will be close to Yf. (Figure 2)
Figure 1 –output very is very far from each other
Price level (CPI)
AS1
AD1
GDP
Ye Yf
Figure 2- output gap more closer
Price level (CPI)
AS1
AD2
AD1
GDP
Ye Yf
Inflation
Analysts said that the biggest problem for households is food inflation. Thus, the households have been suffering from the rise of the cost of living. The voice from the man on the street to businessmen are complaining about having to not feel any good even though the economic growth is delivering a strategic performance in recent quarters and it’s said to continue in 2018. While the GDP growth of numbers is getting better, what’s important is the households are purchasing power and disposable income. Not to be forgotten, their living standards. Based on the Department of Statistics’ 2016 Basic Amenities and Household Income survey, the household’s income in Malaysia has growth to RM5228 in 2016 between years 2014 which is RM4585. Moreover, the rate of growth is 6.6% per annum at nominal value. It has been announced that these rates of growth are lower than the compounded growth of 10.1% in between 2009 and 2014. In the middle year of 2014 and 2016, Malaysia monthly household expenditure has been increasing from RM3578 to RM4033 with a growth of 6% at a nominal value. The rise of inflation in October which is 3.7% has caused the country to spend less. Besides, the number or inflation may be looked well under household income, but the price increased in food has caused the household spend less too! Even the price of fuel has been evaporated because of the inflation. On top of that, the market fish’s price such as Indian Mackerel has increased from RM12.39 a year ago to RM13.84 per kg recently. The food element of the CPI has been increasing to 4.4%, which is the most among all items. The cause of food inflation is households spend their money more on food than other things. They announced that households spend about 70% of their salary on food with a variety of prices. But the food inflation does not involve in the rural areas because they still have lower costs compared to urban areas. The central Bank also talked about how much of living costs is affecting the savings. With an example of a household who earns RM5000 per month, who only has RM43 in the saving after having to pay for the house loan (RM300000) and other monthly expenses. Not only that, Maybank Investment Bank has reported that the rise in employment (2.1% to 14.54 million) in third quarter of the year, 7.4% of wages from private sectors and salaries on the same quarter, together with the cash given by the Prime Minister/Government are accountable for taking care of the consumption. The increase of e-commerce is one of the reason why the retail sales numbers compiled by Retail Group Malaysia decrease by 1.1% in the third quarter. Another strong reason of economic growth is because of the exportations. With a rate of 20% of the year for the first three quarters. But the linkages do not bring as big impact as the housing and construction in Malaysia.
According to this article, it is a mild inflation due to there is a low increase in the general price level of the food which is just 4.4% among all items. Mild inflation is the price increases of an item not more that 5 %. There is a rise in AD curve compared to AS curve. The cause of food inflation according to this article is demand –pull inflation which means that excess spending AE will lead to an increase in general price level. As this article mentioned that the household will spend more on food compared to other things. Thus, shortages of goods and services will occur if they continuous spending on food. The purpose of this mild inflation is to stimulate the business growth. As a result, AD curve will shift to the right and the price level may increase. (Figure 1). In short, there is a direct relationship between AD and the price level. In order to solve this problem, household should spend less on the food and the AD curve will shift to the left. Thus, the price level may decrease too. (Figure 2).
Price level (CPI)
AS1
110 e2 Figure 1
100 e1 AD2
AD1
Ye Yf GDP
Price level ( CPI)
AS1
100 e1Figure 2
90 e2 AD1
AD2
Ye Yf GDP
Exchange rate
Conclusion
As a conclusion, study of macroeconomic can help us know more about the economic condition of the country. A country can reach a macroeconomic equilibrium when the aggregate demand and aggregate supply is intersected .Government plays an important role in the economic growth of a country. They can increase or decrease the aggregate demand by expansionary fiscal policy or contractionary fiscal policy. But it must depend on the condition of the economy whether is in recession period or there is a high inflation in the country. Same goes as the central bank must decide to increase or decrease the aggregate supply by expansionary monetary policy or contractionary monetary policy.
References
Author, Initial(s) Year of publication, ‘Article Title’, Newspaper Title, Day Month, page numbers.
Crowe, D 2013, ‘Big projects ordered to buy local’, The Australian, 17 January, p. 1.
Appendix
