Fiscal Policy & Inflation


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Presentation about Fiscal Policy and how it is implemented in Malaysia to measure Inflation.

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Fiscal Policy & Inflation

  1. 1. FISCAL POLICY  PRINCIPAL ECONOMY (dqs136)  LECTURER : Pn. Norazlin Bt Mat Salleh  PRESENT BY :  Nurul Aznieta Bt Sharif  Zulaikha Bt Elias  Nur Hielyana Bt Ibrahim  Norazima Bt Sajali
  2. 2. Fiscal Policy  Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy.  it was determined that the government had to take a proactive role in the economy to regulate unemployment, business cycles, inflation and the cost of money.  There are two types of fiscal policy practised by a government.
  3. 3. Expansionary fiscal policy • The expansionary fiscal policy is adopted to overcome unemployment or recession problems. • The government will increase public spending by undertaking public works and reduce taxes.
  4. 4. Contractionary fiscal policy • The contractionary fiscal policy is adopted to overcome inflationary problem. • During inflation, the contraction fiscal policy is to create a budget surplus in order to reduce aggregate spending.
  5. 5. AFFECT ON CREDIT SCORE  on this process, the increase in economic productivity can cross over a very fine line and lead to too much money in the market.  This excess in supply decreases the value of money while pushing up prices.  fine tuning the economy through fiscal policy alone can be a difficult, if not improbable, means to reach economic goals.  If not closely monitored, the line between a productive economy and one that is infected by inflation can be easily blurred.
  6. 6. The Economy Needs to be Curbed  When inflation is too strong, government can use fiscal policy to increase taxes to suck money out of the economy.  Fiscal policy could also dictate a decrease in government spending and thereby decrease the money in circulation.  the possible negative effects of such a policy in the long run could be a sluggish economy and high unemployment levels.  the process continues as the government uses its fiscal policy to fine-tune spending and taxation levels.
  7. 7. Affect Fiscal policy  The effects of any fiscal policy are not the same for everyone.  Depending on the political orientations and goals of the policymakers, a tax cut could affect only the middle class, which is typically the largest economic group.  But, when a government decides to adjust its spending, its policy may affect only a specific group of people.
  8. 8. INFLATION  Can be defined as a continuous increase in the general price level of goods and services in the economy.  When a persistent increase occurs in the level of prices that lowers the purchasing power of money, we call it inflation.  Inflation is also a situation where there is ‘too much money chasing too few goods’.
  9. 9. CAUSE OF INFLATION  When too much money is in circulation in comparison to the production of goods and services, then inflation occurs.  The consequences is the fall of purchasing power of money.  During inflation, general price rise means that the cost of living going up continuously.  Various measures can be taken to reduce general price inflation to overcome or reduce the rate of inflation.
  10. 10. QUESTION .. How Fiscal Policy is implemented in Malaysia as a measure to control inflation ?!
  11. 11. Reduce the level of government purchases  Government purchases are expenditures by the government sector, especially those by the federal government, on final goods or services.  It is that portion of gross domestic product purchased by governments.  The actual purchases are typically undertaken by individual government agencies.
  12. 12.  Contractionary Fiscal Policy involves a decreases in the funds appropiated to these assorted agencies. The agencies the reduce their purchases which decreases aggregate productiom, imcome, and the rate of inflation.  A reduction in gov. expenditure will directly affect aggregate demand.  The government will cut the salary of all civil servants and postpone its development projects to reduce the purchasing power of public.
  13. 13. Increases in taxes  Taxes are the involuntary payments that the government sector imposes on the rest of the economy to generate the revenue needed.  The increase in taxes provides the household sector with less disposable income that can be used for consumption expenditures.  While tax changes tend to be administratively easier to implement than government purchases, they are less political palatable to political leaders and voters who prefer lower taxes to higher taxes.  A highly regressive text structure can successfully reduce the impact of inflation on the economy.
  14. 14. Decrease in transfer payment  Transfer payments are payments made by the government sector to the household sector with no expectations of productive activity in return.  transfer payments rely on a payment schedule based on qualifying characteristics of the recipients.  The decrease in transfer payments reduces the disposable income available to the household sector, which then forces a reduction in consumption expenditures, leading to less aggregate production and employment and subsequently a decrease in inflationary pressures.
  15. 15. THANK YOU.. Ika Yana Azima Az