Question 5

a. Recognizing that there may be both positive and negative effects, how will our country's GDP and price level be affected by each of the events below? Demonstrate this in a diagram.

i. Reduction in global oil prices cause lower confidence of Malaysian oil and gas companies regarding the outlook for the industry and they reduce investment spending for the current year.

(4 marks)

ii. The depreciation of the Malaysian Ringgit (MYR) make it attractive for foreigners to come to Malaysia, increasing local tourism.

(4 marks)

iii. Effective from July 1, 2016, the monthly minimum wage is increased from RM900 to RM1,000 for peninsular Malaysia and from RM800 to RM920 for Sabah, Sarawak and Labuan.

(4 marks)

b. In October 2016, the Malaysian Prime Minister, Datuk Seri Najib Tun Razak tabled out Bajet 2017 in which certain actions will be undertaken to strengthen the state of the economy. Also, in 2016, Malaysia's fiscal budget deficit stood at approximately 3.1% of the country's gross domestic product (GDP).

i. Provide two (2) real examples of how the Malaysian government implements fiscal policy as announced in Bajet 2017.

(6 marks)

iii. Using an AD-AS graph to represent the macroeconomy, explain how one of the actions of Bajet 2017 aim to stimulate aggregate demand and bring the economy from a state of 'recessionary gap' back to potential GDP.

(7 marks)