ANEESA SOOFIYAH ROSLAN I UDC220005

FARAH NUR 'ALIYA I UDC220011

MERISSA ASHLEY A/P LOWRANS I UDC220018
MUHAMMAD ADZRY RAFIQUE I UDC220020
MUHAMMAD ARIF SUHAIMI I UDC220021
MUHAMMAD RITZ FIRMAN ROSLI RITZWA ROSLI I UDC220027
NNUQMAN HADI ISKANDAR DZULKARNAIN I UDC220032

PRINCIPLES OF ECONOMICS I UDC1002 I MADAM CHE SUZANA AIDA BT CHE NORDIN

 1.0 Introduction
2.2 Solution by the
Government

Tab le o f 2.0 Discussion

2.3 The Effectiveness
of the Solution

cont en t :
2.1 Impact to the
Malaysian 3.0 Conclusion &
Economy Recommendation

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 1.0 INTRODUCTION
Inflation is defined as a sustained increase in the general
price level which is often referred to as an average of
prices of goods and services in the entire economy and
not only exclusive to the price of any one particular good
or service. For instance, a hundred Ringgit Malaysia note
(RM100) that is worth 8% less than it used to be a year ago.

 INFLATION RATES
Small rates of inflation is good as it is helping the country’s economy grow
and it helps economies stroll away from deflation.

Inflation helps to provide job opportunities as the country’s economy is

blooming.

E.g: the demand for cars from consumers is increasing. Therefore,

factories will hire more employees to increase their manpower.

However, income, prices and housing rates do not increase at the same
rate during inflation and if prices are increasing and income stays the
same rate, it poses a risk for poverty towards the people and may lead
to a financial recession.
 N RATE FORMULA
INFLATIO
 festing ~

DEFLATION
ni
ing ~ ma

man
ifest
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i
e ng
~ manif

Deflation is a broad fall in prices for goods and services and it is often
accompanied by a reduction in the amount of credit and money available to the
economy.

Deflation can be caused by either a rise in supply or a decline in demand.

If supply remains constant, a loss in aggregate demand results in a decrease in

the price of products and services.

Difference between inflation and deflation is inflation decreases the purchasing

power of money and deflation is increases the purchasing power of money.

Moreover, inflation increases demand for goods and services and deflation does
the opposite. In a nutshell, both inflation and deflation isn’t a favourable
condition for the economy.

 TYPES OF INFLATION
Cost-push inflation happens when general price levels rise due to an increase
in the cost of wages and raw materials.

Cost-push Inflation most commonly occurs due to:

increase of raw material prices.

increase in wages due to employee’s demand which could be the result of
the high cost of living or there are plenty of well-trained workers in the
field that companies require.
increase in rent in cities where fresh-graduates and people are moving in
every year for better opportunities.
 TYPE OF INFLATION
Demand-pull inflation is caused by an upwards pressure on prices, which commonly
occurs when the supply of resources is limited to meet the demands of the
consumer or market which causes businesses to increase the price of goods and
services to help curb this issue.

Demand-pull inflation is primarily caused by a few factors:

Consumers spend more and generate greater debt causing demand to rise
steadily, resulting in higher prices.

Businesses might raise their pricing in anticipation of future inflation. A

rise in the money supply combined with a shortage of accessible goods is
another reason that drives up prices.
 positive impact of
inflation
Inflation causes INFLATION CAUSES
reduction of the INCREASED
effective level of
debt
SPENDING AND

INVESTMENT
 Negative impact of Inflation

2.1.1 2.1.3

Inflation
Inflation raises cost
Inflation hike
erodes of living
unemployment
purchasing
rates
power
2.1.2
 SOLUTION BY THE GOVERNMENT
Subsidy
A subsidy is a benefit given to an individual,
business or intituition usually by the government
The subsidy is typically given to remove some type
of burden, given to promote a social good or an
economic policy
The Malaysian government has
given out several forms of
subsidies over a decade.
channeled RM20.92 billion (US$4.7 billion) under its wage
subsidy programme (PSU), benefitting 357,904 employers
and sustaining the jobs of 2.96 million local workers to
reduce the unemployment rate in the country
provided various consumption subsidies consisting of petrol,
diesel, cooking oil, flour and electricity. The total amount of
subsidies is expected to reach nearly RM80 Billion in 2022,
the projected consumption subsidies expenditure for 2022 is
the highest amount of subsidies in history ever borne by any
government. The objective of these subsidies is to curb
inflation that has skyrocketed in 2022.
 MONETARY POLICY
Monetary policy consists of two types which are
expansionary and contractionary policy. To curb
inflation, contractionary monetary policy is applied.
intended to reduce the rate of monetary expansion to
fight inflation. It is generally undertaken by a central
bank and the central bank usually sets a target for the
inflation rate and uses contractionary monetary policy to
meet the target.
Interest rates are the primary monetary policy tool of a
central bank. In order to reduce the money supply, the
central bank can optimize to increase the cost of short-
term debt by increasing the short-term interest rate.
If the money supply goes down, the demands for goods
will reduce hence causing a price fall.
EXAMPLE BY MALAYSIAN
GOVERNMENT
The responsibility for formulating and implementing
monetary policy is entrusted to Bank Negara Malaysia
(BNM) as the nation’s central bank.
At its meeting on 7–8 September, the Monetary
Policy Committee of Bank Negara Malaysia (BNM)
voted to raise the overnight policy rate for the third
consecutive time by 25 basis points, bringing it to
2.50%.
According to Deputy Finance Minister Datuk Shahar
Abdullah, he said that the current monetary policy
remains accommodative in ensuring the country’s
inflation is at a reasonable level

 CONTRACTIONARY FISCAL POLICY
Fiscal policy refers to the budgetary policy of the
government, which involves the government controlling
its level of spending and tax rates within the
economy.
1.taxation
Two main tools
the first quarter of 2021 (Q1 2021) which
2. spending
To enact contractionary fiscal policy, the government
may decrease spending, increase taxes, and enact a
combination of decreased spending and increased
taxation
EXAMPLE BY MALAYSIAN GOVERNMENT
The external spillover effect from the recovery in
global demand, including the continued increase in
trade activities have contributed to Malaysia’s
economic recovery.
This is evident through the GDP performance for
contracted at a smaller rate of 0.5% on a year-
on-year basis compared to the 3.4% contraction in
the fourth quarter of 2020.
The Malaysian Government is confident its fiscal
strategy will ensure that economic growth
prospects remain strong in the medium to longer
term to fullfil the country's development agenda.
SELLING GOVERNMENT
BOND ON THE OPEN
MARKET
Open market operations is the buying and
selling of government bonds by the Federal
Reserve. When the Federal Reserve buys a
government bond from a bank, that bank
acquires money which it can lend out. The
money supply will increase. An open market
purchase puts money into the economy.
TIGHTENING SELECTIVE
CREDIT CONTROL
Selective credit controls are intended to
encourage or discourage specific types of
investment and expenditure by influencing
the lending policy of banks and similar credit
institutions. In evaluating the usefulness of
these controls and of the different
techniques for selectiveness, it is necessary
first to define the basic objectives to be
fulfilled.
Effectiveness of the Solution

Subsidy

-Allow its producers to produce more goods and

services.
-Increase the quantity demanded of the good or
service and lowers the overall price of good.
-Supplier benefits as if the product is sold at
higher orice and able to produce more.
Effectiveness of the Solution
Contractionary Monetary
Policy

-Used by central bank to alter the supply of money and

credit in the economy
-The central bank, Bank Negara Malaysia decided to
increase the Overnight Policy Rate (OPR) for 4
consecutive times in a year.
-This shows that the policy implemented by the central
bank are less effetive to control the inflation rate.
Effectiveness of the Solution
Contractionary Fiscal
Policy

-Aims to reduce the level of government

spending or increase taxes
-Contractionary Fiscal Policy can be effective in
many ways:
Reducing Demand
Tightening the policy
reducing expectations of future inflation
Effectiveness of the Solution

Selling government bond

-Selling bonds are practically considered borrowing

money from investors.
-The government are able to lower the amount of
money in circulation by selling bonds.
-Contribution of decreasing in the economy's
demand for product and services may attract the
investors to purchase the government bonds.
Effectiveness of the Solution
Tightening Selective
Credit Control

-Tightening selective credit controls are effective

when the central bank restricts the flow of credit
card to specific sectors.
-When the flow of credit is restricts, borrowers
may find it difficult to obtain credit and
discourage themselves from borrowing.
 ARIF SUHAIMI UDC220021

CONCLUSION &
RECOMMENDATION

inflation isn't always a terrible thing, though in fact, a stable economy requires a consistent level of
inflation. Economists are aware that although high inflation poses a significant risk, so does low
inflation. Low inflation can result in chronically low interest rates, just as excessive inflation can cause
those rates to be permanently high.

There are few positive effects on the economy such as it can stabilize economic growth. This is
because economic growth is indicated by modest inflation, and this growth can be prolonged if it is
sustained and mild.
 ARIF SUHAIMI UDC220021

RECOMMENDATION

There are many methods used to control inflation

and, while none are sure bets, some have been more
effective and inflicted less collateral damage than
others.

In order to reduce inflation, the US government is implementing supply-side policy reforms that
complement the Federal Reserve’s attempts to cool demand through monetary tightening. There
are tons of impact such as it can reduce government spending would tamp down on demand-
fueled inflation, while at the same time restoring confidence in the ability of the federal
government to pay down the debt and thus control inflation expectations.
THANK YOU
I hope you can get helpful
knowledge from this presentation.