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The economist expectation on inflation in Malaysia

Inflation in Malaysia is likely to stay low for the others of this year due to vulnerable exports and softer local demand. Malaysia is currently experienced a deflationary pressure. Deflation is defined as a persistent land in the average level of prices in the economy.

In this circumstance Malaysia is categorised as developing a "bad" deflation". Bad deflation sees it source in the demand aspect of the economy. As the export trade and softer home demand is low credited to lower oil and commodity prices, this may cause aggregate demand (Advertisement) to diminish. A show up in AD will result in a reduction in the purchase price level and a reduction in real output. Please make reference to the diagram below.

Diagram 1: Decrease in AD scheduled to weak exports and softer local demand in Malaysia.

Diagram 1 above illustrates the "bad" deflation situation. From your diagram above, we can see that AD change left to Advertising1. A show up in the aggregate demand (Advertisement) will result in a decrease in the price level from P1 to P2, and a reduction in real productivity from Y1 to Y2.

When there may be less demand, businesses makes less earnings or even damage. The manufacturers need to decrease their cost of creation by cutting down supply and lay down off worker. Therefore, the amount of unemployment will rise. This will have an effect on economy badly.

If more folks are unemployed, their real income is low, thus their purchasing electric power will decrease, you will see even less intake. This is proven from the article where it declare that consumer price index [1] (CPI) in Malaysia decreased from more than 8% inflation in 2008 to two consecutive weeks to - 2. 4% in July 2009. This will likely lower the GDP (expansion domestic product) level.

Furthermore, the amount of investment from investor rely highly on the expectation of the market climate for future years, if the consumer demand displaying no improvement in the foreseeable future, business confidence is likely to be low. Buyer will won't invest in our country. This has negative implication for future economic growth.

Deflation brought many effect on the suppliers, consumers and also the economy itself. In the problem of "bad" deflation, producer will faced with the risk making low profit. This is because when the demand is low, it causes the price tag on product also low, they would not gain much earnings and also to ensure them not too loss too much, they will cut down the resource to raise the price back. In addition they tend to decrease the number of staff to save their cost of development.

The repercussions, of the producer's actions are faced by consumers. If they are terminated, their real income will stay low, hence, cannot buy good around they want. Its indicates their purchasing electric power is low. Which illustrates the typical of living also at low level.

Diagram 2: A reduction in Advertising and real outcome.

These situations influence the economy badly. As we can see, in the Diagram 2, when the demand reduces from Advertising to Advertising1, price will also decrease (from P1 to P2) resulted in decreasing amount of real outcome from Y1 to Y2. To survive, producers have a tendency to lay out personnel to cut down cost of development. The unemployment level will increase. Throughout the market it isn't good to get high level of unemployment as it will reduce the society's standard of living. Economic progress will decrease and economical development will be halted.

From the explanation above, Malaysia should take immediate action to beat bad deflation problems. Government could take actions such as by increasing the demand from consumer and increasing the aggregate source.

To increase Advertising, producers could promote their product by advertising or giving a discount. The developer also could increase their employees income, as it can make sure they are more motivated to works and produce high quality of product that meet up with the consumer's taste. In a way, this could increase the aggregate supply (AS) as well. Federal government also could change to expansionary fiscal insurance policy where it could encourage greater use by lowering taxes to increase disposal income. Yet another way is by decreasing the corporate tax so that firm could enjoy higher after-tax revenue. The chances of them to place off staff member will be decrease. Therefore, the pace of unemployment will reduce. This is the best solution in the end.

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This article is about the economist expectation on inflation in Malaysia. They expected that inflation in Malaysia to remain low. There are many factors that donate to this problem. First, it is due to weakened exports and softer home demand because of lower engine oil and product prices. This condition is named deflation. A couple of two group of deflation; "good deflation" and "bad" deflation. As one of the Asia country, Malaysia experienced "bad deflation". A street to redemption in aggregate demand will lead to a decrease in price level and a reduction in real result. If real productivity decreases, then it is assumed that the amount of unemployment will go up, as firms will require fewer workers when there is less demand. Asian country has come out with several ways to overcome this issue. However due for some weaknesses. Only 1 method, which is investment liberalisation, is the effective method to be able to revitalized Malaysia's current economic climate and helps increasing the inflation rate.

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