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Whenever we visit a foreign country and observe the standard of living over there compared to our local statistics, we often bump into questions like: Why is the average income high in some countries while it is low compared to others or ours? Why do prices sometimes rise rapidly while at other times they are relatively stable? Why do employment and production expand in some years and contract in others? These questions carry elements regarding the subject macroeconomics since they look into the workings of the entire economy. In the case between countries, the general economy is seen as a collection of interacting households and firms in various existing markets. Macroeconomics gives us the tool to understand how a change in one part of the world can have its effects there and elsewhere. Furthermore, this subject will give the edge into understanding why Japan faces deflation in the early 1990s or why economist predicts an employment crisis in US in the coming years. Macroeconomics covers a wide range of factors such as unemployment, inflation rates, government policies, economic growth and many more. As they co-relate together, we will be able to discover various results and how has the implemented measures lead a country¶s economy into such conditions. In the following, macroeconomic factors together with their relationships will be discussed and able see how such factors can affect a country¶s economy.
According to the book entitled ³Essentials of Economics´, the fifth edition written by N. Gregory Mankiw a professor of economics at the Harvard University, unemployment refers to those who were not employed, were available for work and had tried to find employment during the previous 4 weeks. In his book, he talks about four types of unemployment. They are the natural rate of unemployment, frictional unemployment, cyclical unemployment and the structural unemployment. (Fortune Sense@blogspot.com, Unemployment) Natural rate of unemployment Natural rate of unemployment refers to the value of unemployment of a certain economy which commonly experiences. In regards to the world economy, unemployment tend to differ from country to country as it is dictated by many factors such as inflation rates government policies, political stability and many more. frictional unemployment Cyclical unemployment Cyclical unemployment shows the deviation or fluctuations of unemployment from its natural rate. Similar like the natural rate of unemployment, cyclical unemployment also differs across the globe.
workers who are unemployed tend to seek out job according to their liking and skill sets and requires time to do so. For example. shifts in global demands and regional disadvantages ( geographically limited ). 3 . Structural unemployment Structural unemployment is a type of unemployment that only happens when there is inadequate number of job available in certain labor markets to sustain employment for everyone.Frictional unemployment Frictional unemployment is a type of unemployment that occurs due to the time taken for workers to find for the jobs that they like and suits their skills. For instance. the introduction of the internet has cause a dramatic decline in postal service hence. Thus. At any given situation. this frictional unemployment can explain the existence of unemployment for a brief period in a year. seasonal periods such as monsoons and fruits seasons causes short periods whereby fishermen and fruit pickers will work during good conditions and halt their work during bad conditions. indirectly resulting a drop in demand for such services and caused postmen to lose their jobs. This may be a result of technological breakthrough.
2008. during an economic recession. However. Disinflation shows the decrease in inflation rates. ) Deflations Deflation can be known as negative inflation or prices of goods fall rather than increase. There are deflation. 5th edition. Essentials of Economics. there are terms to define a certain type of inflation that has occurred.Inflation. demand-pull inflation and cost-pull inflation. therefore that on average prices or goods in Japan are 10% higher than the previous year. (Gregory Mankiw. prices of flowers will increase tremendously on Valentine¶s Day or a week before and so is the prices of pork during Chinese New Year. one would ask how do we know how bad is the inflation or whether the inflation rates are at an acceptable level. special occasions and also catastrophe. often times. For instance. However. For instance. N. 4 . Say. Hence. Inflation rates are measured in percentage denoting the general price level is increasing. Deflation occurs when the overall prices of goods literally falls. momentarily increment in prices does not succumb to inflation. the inflation rate for Japan is 10% for this year . stagflation. prices go up but at a smaller factor. Singapore: CENGAGE Learning. Inflation refers to an increment in the overall level of prices in the economy. prices tends to as markets downsized and general production slows down. When it comes to inflation. hyperinflation. This rise of price value of a certain good for a brief period may be a result of recent discoveries. deflation is thought as disinflation.
Say. Companies which are unable to cope with the sudden shift are force to slow down production and subsequently laying off workers in order to downsize.Hyperinflation This is a critical condition whereby inflation rate increase at such extraordinary rate. industries that depended on oil are now force spend more for the same amount of oil. In Zimbabwe. Stagflation A situation in which whereby inflation rises together with the general unemployment rate. These examples are considered moderate. Prior to that. a storm broke out and ravaged most of the oil platform out at sea. A sudden shortage of such commodities can occur during a natural disaster. Russia has recorded an inflation rate at about 13% and 25% in Venezuela.000% . however. In 2007. the central bank of Zimbabwe has recorded an astounding inflation rate of 24. thus causing a in the supply curve causing an inflationary effect on oil prices. A possible cause for stagflation is when there is a shortage of essential commodities such as oil. 5 . this is a good example of a hyperinflation. Now. Hyperinflation are also measured in percentage but the value that they are measured are in the thousands.
input factors such as wages that do relate to higher productivity can lead to increase in overall cost of a product to compensate the increment made. For example.com.Demand-pull inflation This condition is mostly like to occur when the overall demand for the goods and services in an economy rises while the supply of such goods are unable to cope with the demand. Such events can be caused by the expansion policies made by the local government. Inflation) 6 . (Fortune Sense@blogspot. A fall in exchange rate can also lead such events. an increase in exports as well as increased in consumer spending Cost-push inflation This type of inflation is caused by the rise in prices of input factors.
The diagram below show how economic growth can be determine from a graph. 2008. All nation that conducts trades has created a form of economy.Economic Growth Economic growth simply implies the ability of an economy to produce larger levels of outputs. N. whether the economy is doing well or not is dependent on the ability of the nation to be highly productive. Singapore: CENGAGE Learning. (Gregory Mankiw. Essentials of Economics. nonetheless. GDP per capita increases and the nation undergoes economic growth. it would mean an outward shift of its production possibility curve. When a nation¶s GDP grows more rapidly than its total population. In a plotted graph. 5th edition. ) 7 .
Lands and rivers are not going grow crops and generate electricity by its own.com. just a little on-the-job training and the worker can attain average performance. Labor is a form of resource. The ability to maximize the natural resources can create an economic growth. It has the capacity but with the assistance from the human workforce.Factors stimulating economic growth. experience and health services which enhance the 8 . Endowment of natural resources. Planting crops and laying bricks for dams do not require special skill of any sort. Land can be use to build farms. Rivers can be use to generate electricity a small scale and dams to generate larger volume of electricity. Natural Resources) Investing in human resource. a worker who highly knowledgeable is only capable to carry such duties. But. training. a greater output can be achieve. what about designing the damn? or say genetically engineering the seeds to produce better crops? Certainly.( Tradingeconomics. buildings and grow timber. All of these natural resources act as a platform for a nation to cultivate benefits and to enhance its own living standards. These are known as human capital which refers to education.
World leaders must attain political stability in order to gather its labor and collaboratively work together towards economic growth. the introduction of mobile phones in the early 1970s have accelerated the world economy as business talks can be done from a distance. New discoveries. Agreements between two parties are now easier and critical decision can be made to avoid unwanted outcome. funding labor to instill up-to-date knowledge in their own fields will generally increases the GDP per capita.skills and knowledge of a worker to produce goods and services. Another breakthrough is the introduction of bioengineering. There are role whereby local authorities should carry out such as. The field of bioengineering has open up new carrier path and has allow crop growers to produce better resistance and longer lasting crops. For instance. in large volumes. 9 . Therefore. Intense research will give an edge into becoming more efficient than before. Political environment. Research and development plays a vital role in a nation¶s economy.
Population explosion. local authorities will try their best to create a sustainable economy. farms and machineries are not going to produce any output if there is no one to assess them. Human resource management Labors are the key assets in an economy. 10 . Limitation in economic growth. Therefore. national defense and telecommunication service can serve as a platform for the public to work with. a nation should look forward in producing a productive workforce which has the all the required skills and knowledge generate output from capital goods. systematic filings of transactions. Roads. This can be a problem when population growth exceeds the national output levels. hospitals. This will force the country to experience an economy with negative growth. Capital goods such as building. In every economy. Therefore.y Establishing an effective legal system Proper legal systems will encourage positive competitiveness. lands. and private ownership of property y Utilities Government must provide a essential convenience for public to help in the economic growth. it is essential that population is growth is monitored thoroughly.
Result as such has affected investors¶ confidence about Dubai. the inability to do so may result into unwanted effects from an economic downfall such as debts. Now. Poor overall management.Limited and poor usage of natural resources. Renewable resources such as timber can be replenished. Apart from debts. However. As you drive along roads in Malaysia. 11 . living standards of citizens will be affected. local government will try their best to handle the country¶s economic activities in most efficient way. one will find street decoration as they drive along. Dubai has recorded a staggering debt of 80 billion dollars in total for the year 2009. Limited resources such as oil and minerals are required to be managed well and benefit as much as possible. In a country. allocation of such resources is still important. Recently. However. Bad debts force a country to allocated its key resources to clear of the debts instead of benefiting itself. corruptions and non-beneficial projects do not help the public in any way. wouldn¶t the funds spent on such projects would have better value if the funds had been spent on maintaining the street? Therefore. Resources are first to be allocated to satisfy the key result areas of an economy since they play a bigger and more essential role. For instance.
in the sense that they can produce a certain good more efficiently than others. 12 . In this aspect. Management) International trade.com. Economies of scale In an international trade. a country can decide whether will it allow free trades or will propose restriction or taxes on goods. Both countries produce the goods they specialized in and therefore increase the total goods produce in the economy. ( Tradingeconomics. However. countries specializes in what they do best. Such restriction is known as protection. Malaysia can produce palm oil more efficiently than Japan while Japan can produce electronic goods more efficiently than Malaysia. in a free trade economy. An example for an international trade would be Malaysia exports palm oil to the United States. a country will impose any barriers on importing and exporting. In this way. Advantages of a international trade. the world economy can achieve larger volume of units and lower unit cost. For instance.such projects cause the inability for a country to create necessities vital for economic growth. International trade allows a country to trade with neighboring countries as well as those located miles away.
Competition International trade promotes competition among sellers of the similar goods. This allows the protected seller to gain dominance of the domestic market but giving little room for them to improve. the Malaysian government imposes protection measure on its local car producer. However. allowing the UK consumer a variety to choose of beer to choose from. International trade allows a variety of goods to be sold and enjoyed without having to travel all the way to a specific country just for that good. seller B will improve its car business to be on par with seller A. if seller A is doing better than seller B. beer made in the UK is different than the beer made in Germany. beer made in Germany are sold in the UK. countries imposes protection on their own goods. 13 . hence. For instance.Variety of goods. Seller A sells cars from Japan and seller B sells car from the US. in some instance. Proton and it has gain dominance over the domestic market while at international organization rated Proton as a 3 class car. For instance. by trading international.
com. for every dollar spent will generate more in the future. For instance. Malaysia has introduce multiple project to help boost the well-being of the economy. the MSC (Multimedia Super Corridor) was design help Malaysia to gain strength in IT sector. The Iskandar Malaysi was also an investment by the government to build up the state of Johor to cope with the rising competition by the Singaporean economy. Malaysia) 14 . they tend to find new market whereby there will be great potential to make good profits. Government spending is need to build utilities and to improve living standards. Indirectly. American companies are now shifting production to Asian countries like China and India whereby cost of production are low and incorporating American technologies at the same time. Government spending Government spending is crucial. Based on the multiplier theory. Throughout the years. Asian countries are now getting the opportunity to embrace new technologies brought in from abroad.Technological gains As businesses expands. (Economy Watch. Wrongly allocated funds will lead into wastage and causing deficits.
Economic growth opens up new jobs and job-less labors are now able to earn and more cash flow is circulating throughout the economy more frequently. hence causing a rise in unemployment.Relationship between unemployment and macroeconomic factors Inflation As inflation rises signifying economic growth and as economy of a country moves towards full-employment. Conversely. 15 . the country will experience low levels of unemployment. as inflation rates drop showing that the economy is slowing down and businesses stop expanding causing lesser job opportunities. rises the prices of overall goods. This generates higher cash supply and thus. The Phillip¶s curve shows clearly how both these factors relate and at one point stagflation can occur.
meaning as one factor rises.Economic growth Economic growth and unemployment share an inverse relationship. creating jobs for unemployed Chinese workers. International trade By imposing free economy trade between countries. a thorough consideration is needed before executing such business plan. businesses are able to expand further and while creating jobs for foreign workers in foreign lands. Hence. Sony expands its business into China. Wal-Mart which is an American company faces such issue whenever their business grow. the world¶s largest giant retailer outlet. what about the welfare of the Japanese? They jobs too. However. Simply put. One would ask. if Sony is going to build factories in China and not in Japan. For example. Job created overseas are doing foreign countries a great favor tackling unemployment but on the expense of the Americans. Base on this. there is a downside in such situation. establish local factories run by Chinese workers to reduce labor cost and indirectly. a Japanese company specializes in electronics are now outsourcing their plants in China lower the cost of manufacturing its electronic parts. job opportunities rises thus the jobless labors are now able to work. as economic improves. Another 16 . the other factor falls. For instance Sony.
Government spending Government expenditure can help reduce the unemployment if the spending is used to create jobs for the unemployed. Recently. however.. it should generate more benefits than loses.problem of unemployment that comes along while trading in a free economy is the risk of being monopoly. projects invested in should also generate further income for the government in order to continuously maintaining the unemployment rate at a acceptable level while not causing an inflationary periods at the same time. nonetheless. For instance. The major project had given jobs opportunities for local labors to work and also bringing in foreign investors. As Wal-Mart grow bigger and venture into countries like China and India. government can eliminate the short term structural unemployment that effecting the economy. Mahathir Mohamad as Malaysia¶s fourth prime minister. Wal-Mart was accused for causing a major shut down among small retail businesses in America and in place where their outlets are set up. the government had invested in building a new city hoping to shift all of its administrative work there and the city was Putrajaya. by creating housing projects. Putrajaya today was 17 . Expanding businesses are the results of international trades. it is eliminating all of its competitors especially the smaller retail outlets. However. During the tenure of Dr.
Malaysia has recorded a loss of about 10billion ringgit due to the project. used to maintain unemployment at a stable level. In his book. Now. 18 . it wouldn¶t be worthwhile to invest in such mega project which is unable to further generate adequate income that as mentioned earlier.regarded as a ghost town as referred to a book written by Barry Wain entitled ³Malaysian Maverick´.
8%. with the introduction of the NEP Malaysia now has begun to industrialize. As seen. Q3 ± 3. Malaysia had to also deal with unemployment rates as such the 2008 economic recession will deal impact on the local labors. Q1 ± (. Malaysia which was known as Malaya back then had gotten a grip in the economic trend during colonial times and being colonized by the British. the spell lasted briefly and showing signs of gradual recovery. Q1 ± 7.5%.6%. there was a dramatic drop in early 2009 . Q2 ± 3. Q3 ± 4. Q2 .Fortunately. Malaya was seen as a pot of gold in the eyes of imperial powers such as the Dutch and British. Q4 ± 0.Malaysia and its economy. Q2 ± 6.(-3. Malaysia was discovered to have an abundance in key natural resources and essential minerals necessary for the industrial revolution in Europe. Tin was the first commodity to be commercialized in Malay and slowly moved on to rubber and oil palm. Unemployment At the same time.6. In the early 1970s. Malaya was under the hands of the British due to the treaty made with Dutch.9%). Recently.6%. However.1%.4%. 19 . Firms had been reported laying off workers in order keep cost low. Malaysia had report to sustain a slight change in 2008 from Q1 ± 3.25%). Malaysia has been affected by the recent economic recession.1%. in 2009. Is it reported that it has suffered a minor downfall in GDP level from 2008 and slowly improving in late 2009. as reported in 2008 .2%). and Q3 ± (-1.
then it is most likely that inflation rates will be lower. Malaysia had sustain a rather unstable unemployment in 2009. like the second quarter of 2009 which has recorded a 4% rate. a staggering 4% in the second quarter. unemployment rates have an inverse relationship with inflation rates.and Q4 ± 3. due to the large scale slowdown in general production as well as the pullback of foreign investors and also social issues. Inflation According to the Phillip¶s curve. a drop to 3.3% in 2009.6% in the third quarter and remaining till the last portion of the year but surprisingly.1%. However. local economists from the Malaysian Institute of Economic Research have reported that Malaysia is expected to bear a 4.2% unemployment rate this year.3% from last year¶s forecast which was 4. However.5%. we can roughly assume the inflation levels which was relatively low. It has recorded having 3.3%. Malaysia ) 20 . Malaysia suffers an average unemployment rate of 3.com. a decrease of 0. Fortune Sense. Base on a business blog.1% in the first quarter. Unemployment rates in Malaysia for the year 2008 had scored an average of 3. Therefore. If the forecast are true. (Business Times. The following table shows monthly inflation rates for the year 2008 and 2009. if Malaysia sustains a high unemployment rate. Malaysia inflation rates had been unstable throughout 2008 but suffered a drop along 2009.
5 Aug 1.7 7. http://fortunesense.5 2.8 1.19 5.2 0.3 3 May Jun 2.9 8.html 21 .6 7.com/2009/03/malaysia-inflation-ratesince-year-2006.Jan 2009 3.6 4. Regarding an online article from Business Times. http://fortunesense.5 Sept Oct 0.6 Nov 0. there is a drastic drop in the average inflation rates from 2008 to 2009.blogspot.3 8.3 8.html As we can conclude.blogspot.7 Mac Apr 3.7 Jul 1.5 5.8 3. inflation rates will remain between 1% and 2% *statistic for the unemployment.3 Feb 3.5 3.com/2009/03/malaysiainflation-rate-since-year-2006.9 2008 2.8 2.7 Dec 0.4 avg 2.43 *table based from website. Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah (above) told reporters that with the implemented fiscal policy and monetary policy.
my/En_EconStats_GDP.*Statistic for GDP results.com.asp 22 .mytrade. http://www.
3 billion and covers a land area times the size of Singapore while expected to generate massive job opportunities. However. Malaysia has its own multiplier. the local government has taken countless measures in order to fully make use of the multiplier effect. Malaysia experienced a drastic fall in GDP during the 2008 and slowly gaining momentum by early 2009. hence. Similarly. at the south of Johor. The drop in such 2008 that Malaysia was caused by the badly 23 . however. despite the multiplier effect. any further spending will generally increase the well-being of the economy by four. Therefore. the major project alone cost a whooping RM4. It was a calling for foreign investors from European countries and also to compete with the Singaporean market. a more synchronized township and new markets. Give in example.Economic theories and Malaysia The multiplier The multiplier theory simply defines that funds spent by the government will generate further revenue by a certain scale factor. say the Singaporean economy has the capacity to generate four time the return. It was reported in its website that. For instance. it varies as time passes. the Iskandar Project released and begun its development since 2006.
the Phillip¶s curve suggested that unemployment rates has 24 . Phillip¶s Curve As noted earlier. However. Prior to that.entangled financial system in the USA. which has a large domestic market strong enough to compensate both themselves and their trading partners. Albeit such events. The Kuala Lumpur has recorded and immediate decrease in pointers right after the states were declared and despite their minor win. The banking sector were unable to cope with the excessive loans and causing a major contraction in the financial sector. the drop in GDP was also caused by the political tsunami suffered by the leading party ± Barisan Nasional. Malaysia¶s ultimate weapon which was the service and manufacturing sector had definitely played their roles. In such events. Nonetheless. The national tourism sector alone had supply a rough 40% of the total revenue earned by the service sector alone. other dependant business and industries too was affected and substantially inflicting a recessionary period for the global community. the stock market was put on hold the following as it was suffering terribly as investor are losing confidence and backing down. as it has trades with India and China. Malaysia economic sector did not suffered badly.
inflations rates differed so much although unemployment rates did not change that much in along 2008 and 2009.an inverse relationship with inflation rates. Malaysia¶s central bank has applied similar concept practice in most countries. Inflation rates were uneven. 25 . due to the calculation of the CPI which included out dated item and goods. many essential goods were left out and resulted in a uneven conclusion. As the government introduces various projects. This was was by a flaw made in during the calculations of the consumer price index. an expects to boost the overall Malaysian economy. which is increasing the inflations rates accordingly to the CPI value. short and long term. However. inflation were also monitored and careful policies are taken into account before implementing them. Furthermore.
This move has eradicated the bureaucratic issues suffered by the private sectors. Great potential still resides in the god gifted natural resources which are blessed with such high quality such as the lead-free petrol extracted off the Malaysian coast. Malaysia which had its economy driven by commodities and suffered major ups and downs. Malaysia must have a systematic management system that provides stability and fairness within and outside of its economy. However. who had scrapped off the 30% bumiputra ownership in the private sectors. the economy in the private sector has attain great chance to expand as foreign investor are venturing into the virgin lands of Malaysia as aimed by the execution of the Iskandar Project 2006. Datuk Seri Najib Razal. There are measure already taken by the latest Prime Minister. Since then. is now moving into a multi-sector economy and heading its course in becoming a first world economy. 26 . With the estimated GDP growth of 9% in 2010 and with the right policies applied.Conclusion To put everything in a nutshell. Malaysia is sure to make her way into first world country with a first world economy. in order to achieve such level and to materialize Vision 2020.
27 .288 words.4.
n.my/En_EconStats_GDP.come. Fortune Sense@blogspot.asp 5.html 3.com available at. www.html 7.my/Current_News/Btimes/articles/hufia/Article/ 6.com.com. www. . www.fortunesense.com. www.com available at. n.btimes.economywatch.nationencyclopedia.com/economics/Unemployment-rate.d available at. Fortune Sense@blogspot.References 1. Tradingeconomics.mytrade.aspx?symbol=JPY 2. N.html 8. Essentials of Economics. Business Times.fortunesense. n. ) 28 .com available at..tradingeconomincs.d available at.com available at.d available at. www. www.(Gregory Mankiw. Economy Watch.com/economic-policy/Malaysia.com/search/label/Employment%20statistic 4.com/Asia-and-Oceanice/Malaysia-ECONOMICDEVELOPMENT. 5th edition. Encyclopedia of the Nations. MyTrade. Singapore: CENGAGE Learning. www.blogspot. 2008.com.b03/malaysia-inflation-rate-since-year-2006.
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