TAKE HOME EXAMINATION

<5 / 2022>

<BDEK2203>

<FINAL EXAM>

NO. MATRIKULASI : <950402085967001>

NO. KAD PENGNEALAN : <950402085967>

PART A

1. (a)
i. Balanced budget
Entire public spending is equivalent to total public revenue.

In financial planning or the budgeting process, a balanced budget is one

in which total anticipated income and total anticipated expenditures are
equal. Budgeting in the public sector (government) is where this phrase
is most commonly used. After a complete year's worth of receipts and
outlays have been tallied and documented, a budget can also be deemed
balanced in retrospect.

ii. Budget deficit

The overall amount of government revenue exceeds the whole amount of
government spending.

An overrun in spending over income results in a budget deficit, which

can be a sign of a nation's financial stability. The phrase is frequently
used to describe government expenditure rather than that of companies
or people.
Budget deficits have an impact on the overall amount a nation owes to
creditors, the total of its yearly budget deficits, and the national debt.
b.
The government is crucial to a nation's ability to thrive economically.
The mixed economy approach used in Malaysia allows for government
involvement in the economy. By doing this, it will be made sure that the price
mechanism treats all parties equally and fairly. In other words, the government
guarantees economic stability, price stability, and full employment. Let's now
examine the government's economic functions.

Increasing Resource Utilization Efficiency

Increasing the effectiveness of resource use is one of the government's
economic duties. Utilizing a nation's economic resources effectively will
improve production. The best possible use should be made of resources
including capital, labour, land, and other inputs with no wastage. For instance,
the government will try to guarantee that resources are meaningfully used in
order to ensure that the labour force is fully used. This is accomplished by
providing incentives to encourage the expansion of specific sectors and by
enacting taxes to deter usage.

Fostering a business climate that promotes competition

We also need to be aware that creating a corporate climate that fosters
competition is one of the government's economic functions. A positive
business climate should be developed in the market to promote
competitiveness. The efficiency of resource use will rise with healthy
competition. Market prices and earnings for products attest to their high worth.
On the other hand, a low price and profit level suggest low value and market
overstock. Therefore, economic resources should be allocated to more
lucrative businesses based on price.
Managing the Level of Basic Goods' Prices
The regulation of basic commodities pricing is another duty of the
government. Inflation and price increases for items will have an impact on a
nation's economic development, but they will also have a negative impact on
people' purchasing power. As a result, the government must regulate the cost
of commodities on the market, especially fundamental necessities. This
guarantees that customers' purchasing power is preserved in addition to
protecting the public interest in maintaining access to reasonable rates. For
instance, the Ministry of Domestic Trade and Consumer Affairs will keep an
eye on market pricing over the Christmas season, especially for basic
products.

Making the Economic Environment Stable

To achieve economic growth, the government must also provide a stable
economic climate. For investment to be encouraged, especially foreign
investment, a stable economic climate is crucial. Investors often prefer a
steady economic environment than a turbulent one. This will ensure the
anticipated investment returns. Citizens' lives are impacted by a calm
atmosphere and stable politics, which also raises their level of living.

Distributing Income and Wealth

The distribution of products and services to customers who have income is all
that the market pricing mechanism does. It does not ensure an equitable
distribution of wealth and income among all residents. This is due to the fact
that not all residents have large incomes; others have little or no incomes. In
order to guarantee that wealth is divided more evenly among the populace, the
government must fulfil its mandate. To create a more equitable distribution of
income, the government has launched the New Economic Policy and National
Development Policy.
 Growing government welfare programmes
Public services must be made available by the government for the benefit of
the populace. This is so that folks with lower incomes can't afford opulent
amenities. These include, for instance, health, education, and medical services.
High medical expenditures are unaffordable for those with lesser incomes.
Therefore, a significant amount of medical expenses will continue to be
covered by the government, allowing the general public to pay relatively
minimal fees.

3. (a) To take advantage of economies of scale, smaller nations require wider

marketplaces to meet a minimal demand. Additionally, because to resource
limitations, they can profit from trade by gaining in diversity, which further raises the
wellbeing of the nation. Furthermore, assuming that the plant is at the centre of a
circle with a radius of miles, which represents the "natural" market for any particular
plant. The likelihood that the usual circular market will include some foreign
countries is higher the smaller the country, assuming that the manufacturing facilities
are dispersed around the nation.

Opening a trade is difficult since losses can happen quickly, but gains are frequently
spread out over time while having the potential to be much greater and more broad.
The producers that stand to lose from more liberal imports are frequently well-
organized and capable of effectively blocking changes. Additionally, when one of the
nations engaging in mutual trade liberalisation is disproportionately large, it gives
smaller nations' lobbyists the opportunity to raise the concern of being overrun by
imports from their larger partners.

In South Asia, a long history of political conflicts makes regional economic and
commercial cooperation even more difficult. In these conditions, opening up trade to
neighbours calls for strong leadership and a visionary approach to the contribution of
trade and regional integration to economic growth.

The potential losses to output and employment from more competitive neighbours
like India are the main concern of South Asian opponents of trade liberalisation.
What's absent from their reasoning are the significant long-term gains to other
economic sectors that would more than offset any short-term losses.

Consider the three main participants in this discussion: consumers, producers, and
exporters. Liberalizing trade between smaller nations would always benefit consumers
since it would provide them access to more options, higher-quality items at lower
prices, and both. The liberalisation of trade would also assist exporters in the smaller
nations by giving them access to bigger markets and more affordable inputs.

The smaller nation's producers show a mixed picture, with the more productive ones
winning and the less prolific ones losing. Increased international competition puts
pressure on manufacturers to improve productivity and efficiency. Businesses that are
unable to increase productivity risk being driven off the market. However, this might
be offset by other businesses that gain from the availability of better and less
expensive inputs, increasing their capacity to compete both domestically and
internationally.

Governments may demonstrate better leadership and more preparation for the
transition process by having a more comprehensive understanding of the winners and
losers resulting from mutual trade liberalisation with adjacent nations. The
liberalisation process can be gradually introduced over a credible and limited time
frame for important industries where there are worries about significant job
displacements. On the other side, initiatives to increase competitiveness can be put
into place as a top priority in order to fully benefit from market access (and also better
resist increased import competition). With several countries in South Asia having just
had elections, the new administrations there may utilise their political capital to make
more audacious decisions that expand bilateral economic cooperation and hasten the
spread of wealth.
b. The national security argument, the endless industry argument, and the dumping
argument are three reasons in favour of trade barriers. We will discuss each of these
arguments and assess whether it has any merits similar to anything in life. There are
some industries within the economy that should be safeguarded from foreign
corporations because they are crucial to maintaining output in the event of national
emergency. These reasons are no different, and the national security argument is no
exception. Therefore, they may be items like those in the wale sector since we still
require these companies to operate during a national emergency to provide military
equipment, etc. The nation should be self-sufficient because, in the event of an
emergency, relying on someone else might have negative consequences, which is
what the national security rationale seeks to avoid. Due to this region, a country sets
various restrictions on foreign businesses in order to prevent their expansion in the
domestic market. Therefore, a would be higher if one of the paws on this one paw one
important were to be. Prices may really be lower if you purchase that thing elsewhere.
There are new industries emerging with time, economy, or technological
advancement, and because these companies are new, they may need to charge a
higher price than they would otherwise. This is because we don't want to rely on
foreign industries for that good, so we impose those barriers, such as a tear of, or
possibly a quota, which results in us paying a higher price than we otherwise would
without those barriers. That's already well-established from someplace else could
charge, and the reason they have to charge more as a new business is that they're still
getting started, have start-up costs to pay for, and they might not be as efficient as
they are. We know this from life when we learn things when we first learn anything
we're not as good, it is as we are after, but efficiency takes time, there's a learning
process involved, right? We put in a lot of practise and eventually master it. The baby
industry argument defends fledgling enterprises by using measures like trade
restrictions, tariffs, and chotas to shield them from competition and allow them time
to grow. These obstacles typically have a time limit, but this provides the new
industries time to establish themselves and become productive so they can compete on
a larger scale. What's going on here? Well, the fall we've previously witnessed is a
rise in pricing. The argument about emerging industries is meant to defend companies
that are already well-established elsewhere. They are already proficient at doing this
elsewhere. They require protection because of this. They wouldn't be able to compete
if we didn't protect these because if that new company offers the product for $5 but I
can get it over here from company b for $3, I'm going to purchase it from company b
and company a that's new is out of business. I'm paying $5 for a thing now because
we're protecting business A because we think they're going to fail and we want to give
them time to develop. We will soon be paying some higher pricing because I could
have purchased it for $3. So that they may compete on a global scale of markets, we
safeguard that firm and let them build themselves. In order to attract customers or
maximise profit, foreign companies may sell their products for less on the global
market than they would charge domestic consumers. So the dumping argument
basically says: let's say there is a company: they want new business, so they're just
going to get rid of this product Line they're going to dump it into the market, that's
why it's called the dumping, just dumping it on to the market of of cheap fox to gain
customers. If they're using the strategy to attract customers, they're probably going to
be trade barriers put in place to parent this. What then is the fault in this? In any case,
if suddenly we have companies a and b, a and b normally sell his items for the same
price. Okay, so maybe they sell it for $3 and often purchase it from business A
because, you know, it could be quicker, but not all of them. Company B is going to
sell the identical product for a dollar and simply flood the market with it in order to
attract more customers. Since it's now less expensive, I'm going to buy it from
business B as well as company A, when they were both selling them for the same
price and were in direct competition with one another. The problem with this is that it
might push established firms or market lines out of business since company A would
struggle and may eventually succeed. It may force companies off the market. So, as
we can see, each of these arguments has merit, but they do fall short occasionally, just
like other things in life. The national security argument, the endless industry
argument, and the definitive argument all have one weakness in common.
PART B

1. Objectives
In order to control the liquidity in the financial system, the Bank conducts
wholesale and interbank market transactions known as monetary policy
operations. Such operations' main goal is to maintain the ringgit interbank
money market's average overnight interbank rate (AOIR) within the Overnight
Policy Rate (OPR) range established by the Monetary Policy Committee (MPC)
while ensuring the smooth operation of the traditional and Islamic interbank
money markets.
Create and Print Currency
The Central Bank is in charge of creating the money required to guarantee the
efficient operation of business and industry operations. The Central Bank will
decide how much money will ultimately need to be produced on occasion in this
regard.
Government's banker and financial advisor
The Central Bank serves as the government's primary financial institution. All
payments and revenue collections related to government spending and income
flow via the Central Bank since it administers government accounting.
Additionally, the Central Bank handles the country's debt by securing loans
from both domestic and foreign lenders. It also counsels the government on
loan plans, including the terms and timing of loan security as well as the
creation of new kinds of securities.
Commercial banks and other financial institutions' bankers

Between banks, Reserve Guardian and Debt Clarifier

All commercial banks are required to deposit a specific amount of money into
their statutory reserve accounts with the Central Bank each month. This aims
to limit the banks' capacity to extend loans. Additionally, after issuing checks
that are routed through clearing houses, banks can pay their obligations among
themselves using a clarifying account maintained in the Central Bank.
serving as the loan's final source
The Central Bank is constantly prepared to offer regulated financial
institutions ultimate credit facilities. The Central Bank's role in ensuring the
effective and seamless operation of the financial system. Such assistance is
provided in a number of ways, most notably through the Central Bank's
rediscounting of qualified bills (such as Treasury Bills, Government
Securities, and Investment Certificates) and by direct loans from banks
secured by mortgages.
Managing Commercial Banks' and Other Financial Institutions'
Operations
To promote efficient operations and safeguard the interests of their depositors
and society at large, the Central Bank works as a regulator for financial
institutions that have been granted licences.
both banks and nonbank Licenses
Institutions with licences and representative offices require licences to conduct
business. Commercial banks, financial firms, merchant firms, discount firms,
and money brokers are examples of licenced institutions, whereas building
credit firms, token credits, development fund firms, factoring firms, and
leasing firms are examples of scheduled institutions. On the recommendation
of the Central Bank of Malaysia, licences are granted by the Ministry of
Finance.
Putting the National Monetary Policy into Practice
The Central Bank of Malaysia can affect economic activity through monetary
policy by regulating the money supply and interest rates. Interest rates and the
money supply both contribute to economic growth. A low interest rate, for
instance, will stimulate new investments since borrowing is not expensive.
2. Hyper Inflation
This inflation is extremely rapid and unrestricted in nature. Due to the
potential for a sharp decline in the purchasing power of money, hyperinflation
will have a detrimental impact on the financial system. It typically happens
after a tragedy or a natural calamity, like war.
It makes little sense to save when inflation is in the double, treble, quadruple,
or even higher digits each year. Spending money prior to it losing half its
worth in a month, a week, or a day is the only prudent course of action. The
fact that everyone is striving to spend money as quickly as possible will
accelerate the inflationary spiral and lead individuals to spend more and more
time attempting to predict which things will increase in price the quickest. The
fact that earnings and salaries are not keeping up with inflation will drive an
increasing number of individuals to stop engaging in productive activities.
Instead, they will pass their time speculating, trading already-existing things,
and doing nothing productive.
Money could eventually lose all of its value. Nobody is going to labour for
pay. The only options for surviving become barter and surviving on one's wits.
Due to this and the fact that investment in productive capital has almost
stopped, production has decreased. Increase in unemployment. A severe
depression is imminent.