PRINCIPLE OF ECONOMICS
ELEVENIE JOHN BAPTIST (13012236)
FELYSITA BT SAMUDIN (13012246)
JACQULYN ANNABELLA JAMILUS (13012256)
‘GDP’ is a Gross Domestic Product where is the total money value of the all final
goods and services produce by factors of production in a country over a given
period of time.
One the primary indicators used to gauge the health of a country’s economy.
Represented the total Malaysian Ringgit (RM) value of all goods and services
produced over a specific time period.
Measured at current prices or constants prices and method to measure the GDP.
GDP at market prices is C+I+G+(x-m).
Personal consumption(C): Includes Investment(I): The purchase of
capital goods: by firms for use in
the purchase of goods and services,
production and also change in the
individuals or households.
Net exports (x - m): The differences
Government (G): Spending is the between what a countries earns by
expenditures made by federal, exporting goods and services to other
state and local government for countries and what it pays for goods
and services that are importance from
final goods and services.
WHAT IS CONSUMER PRICE INDEX IS TRYING TO
MEASURE AND HOW IT IS CONSTRUCTED
CALCULATION GDP PER CAPITA FOR THE PAST 5 YEARS
(I). GDP (GROSS DOMESTIC PRODUCT)
The Malaysia’s economy registered growth of 18.76 percent in 2008 as shown
in chart 1, spearheaded by the services and manufacturing sectors. The GDP in
constant terms posted a value of RM 636.9 billion.
In 2009 the Malaysia’s economy decreased by 0.28 per cent which the total
GDP for the year is 18.48 percent. The total GDP for 2009 is RM629.9 billion.
For the next year in 2010, the GDP for the year is increase by 22.19 per cent.
In 2012, the Malaysia economic registered of GDP is RM 751.5 billion.
Transfer payments received by social security beneficiaries, though income in
their hands, do not represent new value addition but part of the already
counted value addition by others, transfer payments cannot be added as part of
GDP or National Income and National Expenditure. The expenditure by the
social security beneficiaries are included.
(II). CPI (CONSUMER PRICE INDEX)
The Malaysia inflation rate has a different from past 5 years. Inflation is issue of
highly price continuously in economy issues. Consumer Price Index is give
influence to price index, in 2008, this influence happen in amount 5.4% is the
highest consumer price index (CPI) in past 5 years. In 2009, this price almost falls
Output sectors are divided into three sectors. Primary sector consists of primary
goods production sectors. The second sector consists of the production of goods,
manufacturing and construction. Third sector is the service sector, it allows people
higher incomes and a greater quality of life as a result.
Often associated with low levels of unemployment and steady rates of inflation,
government will collect more money from tax such as income tax and other tax
which can then be spent on public services which benefit everybody.
II) DESCRIBE THREE WAYS GOVERNMENT POLICYMAKERS CAN TRY TO
RAISE THE LIVING STANDARD IN A SOCIETY?
The government plays an important role in the realization of these macroeconomic goals.
The government manages the economy by implementing three kinds of policies.
Fiscal Policy- Gorvernment policy regarding taxes and expenditure.
The purpose of a fiscal policy is to stabilize the economy.
There are two types of fiscal policies:
Contractionary Fiscal Policy
The government can use this policy to bring the economy out if inflation by increasing
taxes and decreasing government expenditure. This measure slows own growth.
Expansionary fiscal policy
The government implements this policy by reducing taxes and increasing government
expenditure. These measures will increase the disposable income which will, in turn,
lead to an increase in consumption.
Monetary Policy- Refers to the tools used by the government through the
central bank to control the supply of money.
Maintain the overall price level, to achieve higher economic growth, to
remove fluctuations in production and to achieve full employment.
Contractionary Monetary Policy – The government can use this policy to
curb inflation where the amount of money supplied will be reduced.
Expansionary Monetary Policy- This policy is implemented when there is
deflation or recession where in government will increase the supply of money.
Growth Policy- A government policy should focus on stimulating the
potential growth of aggregate output and income or in other words,
stimulating the aggregate supply and aimed in increasing the growth rate.
(III) ARE THERE ANY DRAWBACKS TO THESE POLICIES?
A government’s main objectives are to achieve full employment, price stability,
economic growth and equitable distribution of income.
Impossible for a government to achieve all these four macroeconomic goals at
the same time.
The macroeconomic goals will conflict each other when a government try to
implement both goals at the same time.
To achieve full employment and maintain price stability
The government will use expansionary policy by reducing interest rates,
decreasing taxes and increasing government spending.
Will reduce the unemployment rate and increase the wage rate as a result of
higher demand for labor.
The government will control inflation by increasing interest rates and taxes as
well as decreasing government spending.
Consumer spending will decrease and investment also will decrease. Then, the
unemployment rate will increase.
To achieve economic growth and maintain price stability
Government should encourage investment by reducing interest
rates and increasing government spending, a rise in investment
level will create more job opportunities for the society and
increase the national output.
To keep the price stable, the government would increase the
interest rate and reduce the government spending
Then, consumer spending and investment level will decrease.
To achieve economic growth and equilibrium in balance of
When the economy is growing very fast, consumers tend to
spend more on goods and services.
The value of export for that country.
The possible way a government can adjust a deficit in balance
of payment is by lowering the economic growth.
E) IS GDP A GOOD MEASURE OF ECONOMIC
best single measure of the economic well-being of a
GDP per person tells us the income and expenditure of
the average person in the economy.
GDP is a good measure of economic well-being because
people prefer higher to lower incomes.
Economic growth can be measured in nominal terms, which
include inflation, or in real terms, which are adjusted for
The Gross Domestic Product can be determined using three
different approaches: the product, the income, and the
expenditure technique, which should give the same result.
The income technique works on the principle that the
incomes of the productive factors must be equal to the
value of their product, and determines GDP by finding the
sum of all producers' incomes.