How Malaysia Government Can Reduce Inflation Rate by Using Monetary and Fiscal Policy

1. What is inflation? Inflation is an increase in prices for goods and services (What is Inflation?).

When the Federal government has to find ways to regain any money lost they lean on the expansionary Fiscal policy and the monetary policy to regain money into the economy. Whether, a change in taxes or even government spending. Even to the three major tools of the expansionary monetary policy to focus on. In the first part of this paper, I will discuss the expansionary fiscal policy and how the Federal government was involved and the changes that needed to be made to taxes, government spending. The second part of this paper, I will discuss the monetary policy and the tools the Federal Reserve used when under this policy. The expansionary fiscal policy was out to kick start the economy, and the expansionary monetary policy was out to change interest rate, and influence money supply. When discussing these two policies you have to think about one aspect when will it ever stop? Will a policy always have to be part of the economy to help the government one way or another?

Monetary policy is the regulation of the money supply to influence variables such as inflation, employment, and economic growth. Fiscal policies, on the other hand, use the ability to tax and spend in order to influence those same variables (McEachern, 2014, p. 57). A blend of both of these policies is essential for improving the economy when a recession has occurred.

The 2008 Great Recession helped in restoring economic growth and lowered unemployment. Both fiscal and monetary policies are related ways use to increase the aggregate demand and aggregate supply. So, a shift in the aggregate demand curve to the right is expansionary fiscal policy meaning government spending has to exceed (2012). The G- component aggregate demand help to spend, allowing the C- component of aggregate demand to increase. On the other hand, the monetary policy promotes spending, investments, and lending increasing aggregate demand. During the downturn, the systems concentrate on growing demand total while the supply strategy looked for long-term growth in productivity and efficiency (Pettinger, 2012).

There are two ways the economy can be assisted in growing and sustaining itself. First through fiscal policy from the national governments help of changing taxes and spending, then Monetary policy, the managing of money. The two are supposed to work together to help create a better economy but, at times fall short. Leaders in the government for the most part have a top priority to stay in their position, with that in mind they tend to give the people the immediate satisfaction they want which is increased spending and reduced taxes. With this approach fiscal policy is considered expansionary, restrictive monetary policy is what is needed to stop inflation to counteract this.

The Great Recession in 2008 led to a huge crisis in the United States economy. This recession almost led to the entire collapse of the United States economy due to the constant unstable changes in legislation, regulation, along with the changes in fiscal and monetary policies. Furthermore, many economists believe that the increase of excess monetary and government irresponsibility led to the overall crisis in the mid to late 2000’s. Some economists believe that the oversupply of monetary contributed to the 2008 crisis due to low interest rate targets that were substantially below the monetary requirement. In this paper I will discuss the effects of the changes in monetary and fiscal policies that altered the economy in 2008 as well as the current and desired gross domestic product for the future United States economy.

Monetary policy is the national macroeconomic regulation and control of two basic policies. It’s mainly work by implementing expansionary policies to adjust the relationship between social total supply and total demand. They have emphasized particularly on, and closely linked. And it must handle the relationship accurately and correctly. According to the actual situation and using the monetary policy, coordinate and flexible, to give full play to its due role. The government should ensure sustained, rapid and healthy development of national economy. The country to adjust the social capital supply and demand should as far as possible to avoid administrative interference, and should use economic means to guide, when the monetary policy effect is not obvious, fiscal policy should play a leading role.

Monetary policy, ‘The government’s policy relating to the money supply, bank interest rates, and borrowing’ (Collin: 130), is another tool available to the government to control inflation. Figure 4 shows, that by increasing the interest rate (r), from r1 to r2, the supply of money (ms) is reduced from Q1

Since the global financial crisis of 2008, the UK government has been implementing various policies to combat the recession and stimulate economic growth. This essay will look at how effective the fiscal and monetary policies used since the crisis are in achieving the four-macro economic objectives. In addition, I will provide my input on the best way the UK government can carry out these policies.

This essay seeks to explain what are monetary and fiscal policy and their roles and contribution to the economy. This includes the role of the government in regulating the economical performance of a country. It also explains the different features and tools of monetary and fiscal policy and their performance when applied to the third world countries with a huge informal sector.

Monetary policy effects the GDP inflation. “Between 1996 and 2000, real GDP in the United States expanded briskly and the price level rose only slowly. The economy experienced neither significant unemployment nor inflation. Some observes felt that the United States had entered a “new ear” in which business cycle was dead. But that wishful thinking came to an end in March 2001, when the economy entered its ninth recession since 1950. Since 1970, real GDP has declined in the United States in five periods: 1973-1975, 1980, 1981-1982, 1990-1991 and

Higher Wages and Higher Prices Inflation involves changes in both prices and wages, and can be initially caused by either. Therefore, in this essay I will look at two cases of inflation, one, which is caused by a change in aggregate demand, and one, which is caused by a change in aggregate supply. Both of these will have relation to prices and wages. I will then examine the fiscal and monetary policy responses available to government in either case.

| Advocates of active monetary and fiscal policy view the economy as inherently unstable and believe that policy can manage aggregate demand, and thereby, production and employment, to offset the inherent instability. When aggregate demand is inadequate to ensure full employment, policymakers should boost government spending, cut taxes, and expand money supply. However, when aggregate demand is excessive, risking higher inflation, policymakers should cut government spending, raise taxes, and reduce the money supply. Such policy actions put

Discuss the role of government policy in reducing unemployment and inflation. In your discussion make use of the diagrammatic representation of the macroeconomy developed in lectures in Term 2

In terms acceleration of economic growth is based on the measurement of GDP, MALAYSIA HAS recorded a growth of 5.1% last year. Although it is lower than 7.2% in 2010, but it was so roaring in the context of a difficult global economic environment and uncertainty. In contrast, global economic growth has dropped from 5.2% in 2010 to 3.8% in 2011 while the economy of the developed countries like USA, Germany, UK, France and Japan also recorded weak growth of respectively 1.5%, 2.7%, 1.1 %, 1.7% and -0.5% in the same year; far lower than Malaysia's achievements. Following a satisfactory GDP growth was assisted by the Federal government revenue increased by RM13.2 billion in 2011 through increased collection of IRB estimate of RM109.7 billion compared with RM96.5 billion the government has managed to reduce its fiscal deficit to 5.0% compared projection of 5.4%. This means that the GOVERNMENT has successfully steered the nation's economy as well as the control and management of public funds wisely in the past 3 years in a row when managed to bring down the fiscal deficit from 7.0% in 2009 to 5.6% (2010) and 5.0% in the past year in a expanding economy.