MACROECONOMICS

ECO1023

ELEVENIE JOHN BAPTIST (13012236)FELYSITA BT SAMUDIN (13012246)JACQULYN ANNABELLA JAMILUS (13012256)

PRINCIPLE OF ECONOMICSECO1013

INTRODUCTION ‘GDP’ is a Gross Domestic Product where is the total money value of the all final

goods and services produce by factors of production in a country over a given period of time.

One the primary indicators used to gauge the health of a country’s economy. Represented the total Malaysian Ringgit (RM) value of all goods and services

produced over a specific time period.

Measured at current prices or constants prices and method to measure the GDP.

GDP at market prices is C+I+G+(x-m).

Personal consumption(C): Includes the purchase of goods and services, individuals or households.

Investment(I): The purchase of capital goods: by firms for use in production and also change in the firms’ inventories.

Government (G): Spending is the expenditures made by federal, state and local government for final goods and services.

Net exports (x - m): The differences between what a countries earns by exporting goods and services to other countries and what it pays for goods and services that are importance from other countries.

WHAT IS CONSUMER PRICE INDEX IS TRYING TO MEASURE AND HOW IT IS

CONSTRUCTED

Consumer price index which is trying to measure of the average

change over time in the prices paid by urban consumer for a

market basket of consumer goods and services.

Calculated by taking prices changes for each item in the

predetermined basket of goods and averaging them.

The most widely used measure of inflation and viewed as an

indicator of the effectiveness of government economy policy.

Provides information about prices changes in the nation economy.

 

CALCULATION GDP PER CAPITA FOR THE PAST 5 YEARS

Gross domestic product of a country receives and divides by the number of people in the country is a measure of the total output.

The gross domestic product (GDP) is one of the primary indicators of a country's economic performance.

Formula:

GDP per capita: Gross Domestic Product/

population

SECTOR / YEAR 2008 2009 2010 2011 2012

Agriculture 50 50.1 51.3 54.3 54.8

Mining & Quarrying

71 66.4 66.2 62.6 63.4

Manufacturing 167.1 152.2 170.3 178.2 186.7

Construction 18.2 19.3 21.5 22.5 26.5

Services 325.7 335 359.8 385.2 410

GDP 639.6 629.9 676.7 711.4 751.5

POPULATION 27.6 28.1 28.6 29.0 29.3

PERCAPITA 23.17 22.41 23.66 24.53 25.64

(I). GDP (GROSS DOMESTIC PRODUCT) The Malaysia’s economy registered growth of 18.76 percent in 2008 as shown

in chart 1, spearheaded by the services and manufacturing sectors. The GDP in constant terms posted a value of RM 636.9 billion.

In 2009 the Malaysia’s economy decreased by 0.28 per cent which the total GDP for the year is 18.48 percent. The total GDP for 2009 is RM629.9 billion.

For the next year in 2010, the GDP for the year is increase by 22.19 per cent. In 2012, the Malaysia economic registered of GDP is RM 751.5 billion.

Transfer payments received by social security beneficiaries, though income in

their hands, do not represent new value addition but part of the already

counted value addition by others, transfer payments cannot be added as part of

GDP or National Income and National Expenditure. The expenditure by the

social security beneficiaries are included.

(II). CPI (CONSUMER PRICE INDEX)

The Malaysia inflation rate has a different from past 5 years. Inflation is issue of

highly price continuously in economy issues. Consumer Price Index is give

influence to price index, in 2008, this influence happen in amount 5.4% is the

highest consumer price index (CPI) in past 5 years. In 2009, this price almost falls

to 0.6%.

Output sectors are divided into three sectors. Primary sector consists of primary

goods production sectors. The second sector consists of the production of goods,

manufacturing and construction. Third sector is the service sector, it allows people

higher incomes and a greater quality of life as a result.

Often associated with low levels of unemployment and steady rates of inflation,

government will collect more money from tax such as income tax and other tax

which can then be spent on public services which benefit everybody.

II) DESCRIBE THREE WAYS GOVERNMENT POLICYMAKERS CAN TRY TO

RAISE THE LIVING STANDARD IN A SOCIETY?

The government plays an important role in the realization of these macroeconomic goals.

The government manages the economy by implementing three kinds of policies.

Fiscal Policy- Gorvernment policy regarding taxes and expenditure.

The purpose of a fiscal policy is to stabilize the economy.

There are two types of fiscal policies:

Contractionary Fiscal Policy

The government can use this policy to bring the economy out if inflation by increasing

taxes and decreasing government expenditure. This measure slows own growth.

Expansionary fiscal policy

The government implements this policy by reducing taxes and increasing government

expenditure. These measures will increase the disposable income which will, in turn,

lead to an increase in consumption.

Monetary Policy- Refers to the tools used by the government through the

central bank to control the supply of money.

Maintain the overall price level, to achieve higher economic growth, to

remove fluctuations in production and to achieve full employment.

Contractionary Monetary Policy – The government can use this policy to

curb inflation where the amount of money supplied will be reduced.

Expansionary Monetary Policy- This policy is implemented when there is

deflation or recession where in government will increase the supply of

money.

Growth Policy- A government policy should focus on stimulating the

potential growth of aggregate output and income or in other words,

stimulating the aggregate supply and aimed in increasing the growth rate.

(III) ARE THERE ANY DRAWBACKS TO THESE POLICIES? A government’s main objectives are to achieve full employment, price stability,

economic growth and equitable distribution of income. Impossible for a government to achieve all these four macroeconomic goals at

the same time. The macroeconomic goals will conflict each other when a government try to

implement both goals at the same time.

To achieve full employment and maintain price stability The government will use expansionary policy by reducing interest rates,

decreasing taxes and increasing government spending. Will reduce the unemployment rate and increase the wage rate as a result of

higher demand for labor. The government will control inflation by increasing interest rates and taxes as

well as decreasing government spending. Consumer spending will decrease and investment also will decrease. Then, the

unemployment rate will increase.

To achieve economic growth and maintain price stability Government should encourage investment by reducing interest

rates and increasing government spending, a rise in investment level will create more job opportunities for the society and increase the national output.

To keep the price stable, the government would increase the interest rate and reduce the government spending

Then, consumer spending and investment level will decrease.

To achieve economic growth and equilibrium in balance of payments When the economy is growing very fast, consumers tend to

spend more on goods and services. The value of export for that country. The possible way a government can adjust a deficit in balance

of payment is by lowering the economic growth.

E) IS GDP A GOOD MEASURE OF ECONOMIC

WELL-BEING? The best single measure of the economic well-being of a

society. GDP per person tells us the income and expenditure of

the average person in the economy. GDP is a good measure of economic well-being because

people prefer higher to lower incomes.

CONCLUSION Economic growth can be measured in nominal terms, which

include inflation, or in real terms, which are adjusted for inflation.

The Gross Domestic Product can be determined using three different approaches: the product, the income, and the expenditure technique, which should give the same result.

The income technique works on the principle that the

incomes of the productive factors must be equal to the

value of their product, and determines GDP by finding the

sum of all producers' incomes.