CJC 2021 A-level CSQ2 ANS

(a) (i) Explain the meaning of ‘real’ in the term ‘annual percentage change in real GDP’. [2] Real means that the GDP growth rates have already eliminated the effects of inflation. Hence real GDP growth measured the rate of change in the output, keeping prices constant. (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] Malaysia’s has a positive annual percentage change in real GDP, indicating a positive economic growth from 2007 to 2018 except for 2009 of -1.5%. A general trend of positive growth implied that the economy is growing, resulting in a higher real national income, higher purchasing power and hence a higher material standard of living for its citizen. The forecasted economic growth rate of Malaysia is higher than the advance d economies of Japan, Korea and Singapore. This implies that the forecasted rate of an increase in the material Standard of living will be higher for Malaysia relative to the advanced countries. However, the forecasted economic growth rate is lower than Asia overall average, implying that many other developing countries like China and Vietnam is achieving a higher rate of economic growth relative to Malaysia. (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] Unemployment increase in 2009 and decrease in 2010. Whereas inflation fall in 2009 and increase in 2010. From 2008 to 2009, due to the effect from the US sub -prime crisis, the negative economic growth might affect consumers’ confidence to spend during that period. With a lower level of consumer confidence, there might be a fall in consumption leading to a fall in AD as consumption is a component of AD. [1] Figure 1: Economy of Malaysia

The fall in AD falls from ADf to AD1 as shown in Figure 1 illustrates the multiplied fall in RNY. With a fall in production, the derived demand for all factors of production including labour falls. This causes increase in cyclical unemployment. [1] The fall in AD creates a surplus of goods at the initial GPL level (P). This creates downward pressure on price. Firms would then decrease production and factors of production are now no longer scarce. The decreased production results in less competition for scarce resources, reducing factor prices . Each unit of output becomes cheaper to produce and this results in downward pressure on price. Economy re-equilibrates at lower GPL (P1). This helps to bring down demand -pull inflation. [1] From 2009 to 2010, the big jump in economic growth at 7.5% boost consumer confidence as a strong recovery from the US sub -prime crisis was seen in the national figures. This will then increase consumption leading to a rise in AD for Malaysia. [1] The increase in AD from ADo to AD as shown in Figure 2 will lead to a multiplied rise in RNY. With a rise in production, the derived demand for all factors of production including labour rises and this will then lower cyclical unemployment. [1] Figure 2: Economy of Malaysia With a rise in AD from ADo to AD, this creates shortages of goods at the initial GPL level (Po). This will then create upward pressure on price. Firms increase production and assuming the economy is close to full employment , factors of production is now scarce. Increased production results in competition for scarce resources and increases factor prices. Each unit of output becomes costlier to produce. There will be upward pressure on price. Economy re -equilibrates at higher GPL (P1). With a possible persistent increase in AD , leading to further increases in GPL , hence resulting in demand-pull Inflation. [1] P0 P1 AD0 AD1 0 Y0 Y1 YF1 Real GDP AS0 General Price Level

(c) Extract 7 states that Malaysia had a lower-than-forecast growth performance in 2018. Explain how supply-side policies could have been used to bring about a greater rate of growth in living standards in Malaysia after the relative slow -down of 2018. [7] The supply side policy of increasing government expenditure on infrastructure has an expansionary effect on the Malaysian economy. A direct increase in G resulted in an increase in AD from AD1 to AD. Given that there is spare capacity available at the Keynesian or Intermediate range of AS curve, firms increase employment of resources increas ing RNY. This increases the household income and purchasing power causing further induced consumption. This resulted in a spending and respending effect, increasing AD further from AD2 to AD3. The final increase in RNY is greater than the initial increase in spending due to the multiplier effect allowing a stronger actual economic growth, stemming the slower economic growth than the forecast annual rate of less than 5% from extract 7. Benefit: From Extract 6, Increasing G expenditure on public works like infrastructure increased prospects for inflows of foreign direct investment and for enhanced trading relations with the regional economic partner. Spending on public works and investment can also bring about an increase in LRAS. The Increase in Expenditure on infrastructure makes Malaysia a better investment destination. There will be a greater flow of foreign direct investment into Malaysia investing in capital goods. This resulted in an increase in the quantity of capital resources in Malaysia and hence the productive capacity increase d. The increase in AD and LRAS will therefore allow Malaysian economy to achieve sustained economic growth. The second supply side policy is the spending on training and education and increased social mobility. An initial rise in government expenditure to increase labour productivity will lead to a rise in the aggregate demand (AD) and subsequently, the country’s real national income will rise. Government spending on improving labour productivity can lead to an increase in the productive capacity of the economy. Improvement in labour productivity, e.g. offering training programmes to workers, can help to improve the efficiency of workers and lead to a rise in output per hour, hence the quality of labour increases. This will increase the productive capacity of the economy and increase LRAS from AS1 to AS2. This causes an increase in the maximum level of national income that can be achieved when all resources are fully employed from YF to YF” (Fig.2). This constitutes potential economic growth. The government’s spending to increase productivity can also lead to more inclusive economic growth. As unskilled workers become more equipped with up-to-date skills, they will be able to secure a higher -paying job. The increase in their wages helps to

reduce the income gap between the rich and the poor, thereby promoting inclusive economic growth, resulting in a higher material standard of living. (d) Extract 6 suggests that a possible concern arising out of Malaysia’s good economic prospects was that the ringgit ‘would likely strengthen’. Discuss how a strengthening of the ringgit might results in ‘undesirable short- term consequences’, with particular reference to the standard of living in Malaysia. [8] Introduction Strengthening of the ringgit simply refers to the appreciation of the Malaysia currency. An appreciation of the ringgit can result in undesirable short-term consequences on living standards. Main Body: Appreciation resulting in a fall in net exports (AD) R1: there is a fall in mSOL With the appreciation policy being used by the Malaysian central bank, the price of exports will become more expensive in terms of foreign currency and at the same time, the price of imports will be cheaper in domestic currency. Assuming demand