H1 econs CSQ2 2021 Suggested Answers

N2021 H1 CSQ 2 – Economic issues in Malaysia (a) (i) Explain the meaning of ‘real’ in the term ‘annual percentage change in real GDP’. [2] Real GDP means that inflation has been accounted for [1m] and it refers to the change in total money value of all final goods and services produced within a country’s geographical boundary during a period of time measured by actual change in the volume of output [1m]. (ii) Using Table 1 and Table 2, identify the main features of Malaysia’s economic growth performance, both over time and compared with the other given Asian economies. [4] Overall, Malaysia registered positive economic growth from 2007 to 2018, except for the year 2009 when it experienced negative growth. [1m] However, a lthough growth was positive, real GDP had increased at a decreasing rate from 6.3% to 4.7%. [1m] Based on Table 2, Malaysia’s economic growth was forecasted to be higher than Thailand and the advanced economies in Asia, such as Japan, Korea and Singapore [1m], but lower than the other developing economies in Asia. [1m] OR Based on Table 2, Malaysia’s economic growth rate was forecasted to slow down from 2018 to 2019, along with other Asian economies [1m], except for Indonesia where economic growth rate was expected to increase [1m]. In fact, Malaysia and Japan’s economies were projected to fall in the most among the Asian economies. (b) Using AD/AS analysis, explain how variations in consumption could cause variations in the levels of unemployment and inflation in Malaysia during the period 2008–2010. [6] From 2008-2009, there was a rise in unemployment and a fall in inflation rate. This could be due to the conflict that exists between economic growth, employment and inflation . When consumption falls due to pessimistic outlook in the economy, there will be a fall in AD from AD0 to AD1. This causes a rise in surplus or unplanned stock accumulation s. Firms will produce lower output in the next period, causing production and real national output to fall from Y0 to Y1. Derived demand for workers fall, resulting in a rise in demand deficient unemployment. The unplanned stock accumulation will cause producers to drive down prices in order to clear surpluses, leading to a fall in demand-pull inflation from P0 to P1, as seen in the levels of unemployment and inflation in Table 1 during the period from 2008 to 2009.

On the other hand, unemployment rate fell but inflation rate rose f rom 2009-2010. This could be due to a n increase in consumption as a result of economy recovery that cause s a rise in AD from AD 0 to AD 2. The resulting shortage and unplanned stock depletion incentivises producers to increase output and production in the next period. Real national income rises from Y 0 to Y 2 via the multiplier process , causing a rise in derived demand for workers during the period and demand-deficient unemployment fell as sho