Importance of the Macroeconomics Objectives Towards the Malaysia Economic Performance.

In the past Venezuela created inflation that ran at a fairly reasonable rate. However, today they are slowly deepening into an economic crisis. Today Venezuela is experiencing hyperinflation, with an inflation rate above 800 percent. Hyperinflation as discussed in class, is monetary inflation

Inflation doubled in 2007 and reached a peak at 28% in 2008.The fiscal make up 4-5% GDP and the trade deficit accounted for 20% GDP in which approximately $US17.5 billion dollars. The influence of high fuel combine with food prices and high domestic demand lead to high inflation. The high price of fuel in Vietnam illustrates global fuel prices and the high domestic demand of country importing fuel. Furthermore, the increase in global food prices affect detrimental to the high inflation in Vietnam.(Figure 2)

“Provide Summary Level Paper (limit 10 pages) “Purpose and Practice of Inflation Forecasting by Nation” – for insertion after the “Measures of Inflation”

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.

Conflict can occur between economic growth and inflation which in turn leads to conflict between unemployment and inflation. When an economy grows too quickly pressure on inflation rates increase. Australia’s current inflation rate is 1.3% (Economy Snapshot RBA 2016) The current acceptable rate of inflation nationally is between 1% to 3%. Inflation is defined as the sustained rise in the general level of prices in a market. For prices to be stable we should aim for 0% inflation rate. Introducing a fluid monetary policy which concentrates on identifying the fundamental causes of inflation rate rises in an economy, will assist in keeping inflation under control. For instance, if there were to be an excessive increase in demand for goods and services, demand being the primary factor for a rise in inflation, on a government level it should say to us, we need to identify the causes and commence action as quickly as possible to decrease the level of demand to ensure stability of the inflation

If the economy suffers from inflation, the Government will like to check it. Then its Central Bank should adopt tight or contractionary monetary policy. To control inflation the Central Bank of a country can reduce money supply through open market operations by selling bonds or government securities in the open market and in return gets currency funds from those who buy the bonds. In this way liquidity in the banking system can be reduced.

There are four main macroeconomic objectives of the government it wishes to achieve in order to maximise the welfare of the society, they are: low and stable inflation, a favourable current account position on the balance of payments, low unemployment and sustained economic growth.

There have been different views from John Maynard Keynes, Milton Friedman and central banks when it comes to inflation. However, what both John Maynard Keynes and Milton Friedman can agree on is the fact that inflation is seen to be a great evil. Moreover, the central banks interpret inflation as moderate being the fact that some inflation is seen to them as tolerable. Historically, Friedman and Keynes have had disputes on a better system for the control of inflation. For instance, Friedman put forward the monetary policy for the government to use in order to keep interest rates to stabilize an economy, whereas Keynes believed the government should be in control of inflation by the amount of spending produced between goods and services. Central banks have viewed both reasoning’s to Keynes and Friedman’s theories and decided the monetary policy is the best route for an economy to take. A great example of this can be illustrated in Canada with inflation rates only being kept between 1 and 3 percent. The other factors that central banks might have to deal with in other countries would be the change in political views and how much power the government has over central banks to control cash flow throughout their respective countries. The central banks must also avoid dealing with poor decisions made by government leaders which could affect the economy tremendously. In many underdeveloped countries, there have been a lot struggles even until present day where government leaders

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

Malaysia is a democratic country with excellent economic system. We are one the leading country in economic terms and being an example for the economy system we are using. In Malaysia, we are into mixed economy system. This economy system is the leading type of economic system that is used in most of the countries such as United States. Mixed economy system includes a mixture of capitalism and socialism. It combines private economic freedom, centralized economic planning and government regulation. Government plays major role in economic growth as well as distribution of wealth. For example, our government collects tax and provides subsidies at the same time for the public.

Inflation is blazing subject that delays the economic development of the country. It is becoming extra hectic to economists, politicians and even people also. Factors on both demand and supply effect the inflation. So the stabilization strategies ought to consequently focus on both demand manipulation as well as

Hyperinflation, the term can be easily understood by its prefix and foot, the high-strung high index of inflation economics circumstances. According to Cagan, a famous economist, the definition of hyperinflation is when the inflation rate is greater than 50 percent monthly and lasts for more than one year, it can defined as hyperinflation. For example, a dollar item in January cost 130 dollars in the next year of January. Throughout history, there are many examples of hyperinflation worldwide. By looking through the data, Taiwan’s hyperinflation is not as serious as other countries, such as Germany, Hungary and Russia. However, the Taiwanese experience hyperinflation for a very long time, 42 months from January 1946 to June 1949, when compared to other countries.

Inflation is most often understood as a monetary phenomenon. It can be traced back to 10th century China, at a time when fiat money eclipsed coins as a medium of exchange. The government of the Song dynasty issued more notes to pay its bills and experienced the world’s first case of runaway inflation . The effect of increases in the money supply on the economy is theoretically understood to be through higher prices, i.e. there is a proportionate rise in prices without any effect on output. Economists agree that a relationship between inflation and money growth exists based on the demand and supply of ‘money’. A general definition of money in an economy may be given as the total number of notes and deposits in financial intermediaries used in exchange which may also include other units of

Malaysia’s GDP Annual Growth Rate since 2000 till present. Notice the sharp contraction after the 2008 Financial Crises.

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.