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JANNENI
3. GOVERNMENT INTERVENTION
O/N 2002 Question 4 (b) Hazri
Knowledge
Can be supply according to the priorities
G needs to identify the provision and the current
supply detect and avoid surplus of public goods
Priorities including education and health system in
the country
eg, fortify the education system (build more schools,
trainings for teachers) & improving the health system
(free vaccinations, more clinics)
Application
Subsidize private firms
- helps to produce more goods, especially merit
goods
- in terms of education, G needs to intervene the
private college or at least maximize the
involvement to avoid oppression to the citizens
- allows to increase the subsidy given to the people,
more production will be made in return
- minimize the free-rider problem
Impose taxation
- prominent and major funding for public goods
- increase in tax correspond with the increment in the
provision of public goods
- More funds are needed and necessary to increase
the provision
- Eg of tax Direct Tax and Indirect Tax
- Direct Tax compulsory tax on products
- Indirect Tax Specific (based on quantity) and
Advelarem (per unit tax on percentage price of a
good)
- Can be passed down the burden to consumer
- Increase the tax to increase G revenue
- Graphs shifting in Equilibrium Price (pertaining to
tax increase)
Unfunded mandates
- An example is the requirement that every car be fit
with a catalytic converter
- This may be executed in the private sector, but the
end result is predetermined by the state: the
individually involuntary provision of the public
good clean air
Conclusion
Different government have different approach to
increase the provision of public and merit goods
Eg, Malaysian G uses GST to increase GR (thus
increasing public goods in the long run)
Eliminate the free rider that caused market failure to
make it more efficient
October/November 2004 Question 4(b) Suanne
4b) Discuss whether economic actions by
individuals always result in a net benefit to society.
The benefits
1. Make decisions
-free to make decisions
-able to maximise satisfaction from consumption
-motivated by the profits
2. Competitions
-producers will look for new innovations to compete
with the others
-many firms producing a variety of goods and
services
-create efficiency in productions
-wider choices for the consumers
-more efficient use of scarce resources
Conclusion
O/N 11/23
2. (a) Explain the difficulties of carrying out a cost-
benefit analysis.
Define Cost Benefit Analysis:
-Determining whether a particular action should be done
after analysing its social costs and benefits.
-A technique for assessing the monetary social costs
and benefits of a capital investment project over a
given time period.
Why do we use a CBA?
-To simplify major decisions made by big public sectors for
things such as new motorways, vaccinations or factory
constructions.
-To determine if a market failure is present in the economy.
4. INFLATION
May/June 2003 Question 4 (a)(b) Azaki
Application
Since we need to used CPI to calculate inflation, we can
say that the problems in constructing the CPI are also the
difficulties of measuring inflation accurately.
1) Selection of the base year
- The base year is the year where prices are stable
and other factors are constant.
1) Selection of basket of goods
- Occur due to the selection of goods to be put in
the basket. Some of the goods might not be those
that from part of the real consumer spending.
1) Prices of the selected goods
- The prices of goods changes at certain times in a
year, thus giving rise to the problem of choosing
the right price level to be considered.
1) Weightage
- Different people have different tastes and
preferences. The weight given for each item differs
from one person to another.
Knowledge
A continuous substantial rise in the general price level is
injurious to the communitys social economic interests, in
terms of current welfare and future economic
development. Inflation affects the consumers real
disposable personal income and their expenditure pattern
because the money value has fallen and lesser goods can
be purchased.
Application
Inflation tends to be harmful to these group of people :
1) Distribution of income
a) Fixed income earners
o Constant nominal income
o Real income decrease
o They tend to spend more
o Purchasing power decrease
a) Holders of :-
o Government bonds
o Fixed deposits in banks
o Life insurance policies
o Money
a) Creditors
o When they received the money owed to
them, the real value of the money will be less
a) Savers
o They lose often nominal income rate is
lower than that inflation rate
o When they received their money back, the
value of money has been decrease
1) Savings
- The value of fixed deposits, bonds, life insurance
policies and money would depreciate in terms of
real income ( purchasing power ). Since inflation
depreciate those value, people will save less and
invest in non-financial sector houses and land.
We also can gain a few benefits from the inflation :
1) Distribution of income
a) Businessman/profit earners
- Gain even higher profit from the rising prices
a) Property owners
- Eg. Real estate owner, land owner they gain
when the property prices increase
a) Shareholders
- Shareholders who receive higher dividends since
companies profit are higher
a) Debtors
- The real value of money has changed ( decrease )
1) Production
- General level of prices rises producers make
higher profit (they hold old stocks).
- Producers will increase their level of production
and investment create more job opportunities
and reduce unemployment.
4 (b) pending..
May/June 2008 P2 Q3 (b) - Safia
Discuss whether a widespread shortage of labour
might be a major cause of inflation
Inflation:
Inflation measures the annual rate of change of the
general price level in the economy. Inflation is a
sustained increase in the average price level.
There are different types of inflation and the most
common ones are mild inflation and hyperinflation.
Mild inflation is when general price level shows mild
rising trend (e.g. 1 to 5 percent per year). Hyper
inflation is when the general price level increases
extremely rapidly.
YES IT WILL:
A shortage of labor might also be caused by rising
wages. If wages rise, firms will try to pass on the cost
increases to customers leading to cost push inflation.
If wages rise, workers have an increase in income
leading to higher disposable income and higher
spending. this can cause demand pull inflation. Both
could contribute to inflation
NO IT WILL NOT:
In contrary to that, with a shortage of labour, inflation
can be avoided. If the underlying causes of inflation are
ignored, a shortage of labour puts upward pressure on
wage increases, but, other factors affect inflation.
If interest rates are being increased and the economy is
experiencing efficiency savings, overall inflation may
not be affected very much.
CONCLUSION:
In conclusion, there are other factors that should be
put to consideration as they might be more
significant on the influence on inflation such as
money supply increases, increases in aggregate
demand, price of materials for production cost
increase and etc.
May/June 2010/P23 Q3 (a)(b) Danial
Point 1:
> Domestic influences :
High average earnings in the society, higher
purchasing power thus leading to a high aggregate
demand
Firms in the country increases profit margins
Full employment in the country leading to high
aggregate demand and demand pull inflation
Increase in price of raw materials in the country (e.g
oil) cost push inflation
Declining productivity that allows costs to rise.
Point 2:
> international influences:
Inflation in the linked countries. We import goods
from countries that are facing inflation
Inflation is imported into the country as well. Pay a
high price
Shortage in supply of one raw material all over the
world. Price have to be increased in order to control.
Both results in cost push inflation.
Closure:
> every factor is either under the demand pull
inflation or cost push inflation
> as much as the inflation is affected by
international influences, the domestic factors has a
bigger play in this
Introduction:-
Define the rate of inflation and the exchange rate.
Inflation : a sustained increase in the cost of
living or the average / general price
level leading to a fall in the purchasing power of
money.
Content:-
Effect of the rate of inflation on the exchange rate:
o High inflation rates
Country becomes less competitive in
international trade
Exports fall, imports rise, current balance
may worsen
International confidence on currency may
fall (less investment and financial flow will
be disrupted)
Less demand and increased supply on
currency (currency will depreciate)
o Low inflation rates
May not have a noticeable effect
Conclusion:-
Both the exchange rate and the inflation rate affect each
other. However, the impact of both rates varies at how
high or low these rates are.
Nadia
DISCUSS WHETHER IT IS BETTER FOR A
GOVERNMENT TO RAISE THE ECONOMYS RATE OF
PRODUCTIVITY GROWTH OR TO CONTROL ITS RATE
OF INFLATION.
Introduction:
Rate of productivity output per labor per hour.
Rate of Inflation -the rate at which the general price of
goods and services increases. A high rate of inflation
would reduce purchasing power as the price of goods and
services would be too high for consumers to purchase.
Why?
When a countrys inflation rate is mild and stabile
then it ensures that distribution of wealth amongst
consumers is kept in check.
Individuals would be more confident when to invest
as well as save.
People dependent on fixed income would also be able
to retain their purchasing power.
This ensures that there is still a flow of money within
the economy hence giving confidence to individuals to
invest in the economy.
When investment occurs there would be an increase
in industries and job opportunities hence ensuring the
social economic welfare of consumers are protected.
Conclusion
Although a government prioritise controlling its rate of
inflation raising the economys rate of productivity is
equally as important. Nonetheless, this is only a simplistic
assumption to make as there are many other factors that
should be taken into consideration when trying to
maintain social economic welfare of a country.
5. MONEY
October/November 2004 Question 2(a) 4(b) Suanne
2a) Explain how inflation affects the functions of
money?
1. A medium of exchange
-money will lose its value
-people will lose their confidence in money and this will
discourage them to purchase less.
2. A unit of account
-change in the P of goods and services
-the value of the money falls, the prices will no longer true
representative of the actual value of the goods.
-P will change constantly
3. A store of value
-people prefer holding assets like lands
-Assets wont depreciate
-when the value of money depreciated, this will affect the
consumers future spending
-also discourage saving due to the low interest rate
Conclusion:
High rate of inflation affects the function of money in
every possibly ways however low rate of inflation will keep
the functions of money performing properly in an
economy.
M/J 13/P23 3(b) - Paul
a) Medium of exchange
b) Unit of account
c) Store of value
Introduction:-
Define money and three types of economic system
Money : anything that is generally accepted as
payment for goods and services and repayment of
debts.
Planned economic system : an economic system
where the factors of production are owned and
managed by the government.
Market economic system : this system works such
that it is the producers and consumers who decide
how to utilise the resources.
Mixed economic system : an economic system that
incorporates aspects of both the planned and market
economic system.
Content:-
1) Money as a medium of exchange
2) Money as a store of value
3) Money as a unit of account
4) Money as a standard of deferred payment
Conclusion:-
In conclusion, money does bring benefits to the respective
economic system. However, there are also some cons as
money is easily influenced by economic conditions such as
inflation or recession.
6. INTERNATIONAL TRADE
2005 (October/November) - Hazri
Definition
International trade refers to the exchange of goods and
service between people of two countries
Knowledge
Free Term given to trade between nations that takes
place without the imposition of barriers in the form of
tariffs, quotas or other measures by governments or
international organizations
Economic progress of a nation would depend upon its ties
with other countries
Absolutely essential to form specialization in the
production and gives consumers a greater variety of
products
Application (Arguments to support free
international trade)
The theory of comparative advantage
- The ability of one country to produce goods at a lower
opportunity cost than another country
- Free trade enables countries to specialize in those goods
where they have a comparative advantage.
Conclusion
Countries cannot live in isolation
They have to mutually share their prosperity, technical
know-how and undertake trade in order to sell their
surplus products
However, the execution of this system is based on the
priority of the country because a lot of aspects need to be
considered.
O/N 2007 Question 4 (a)(b) Chong Yao
Heading
- Different methods of maintaining fixed exchange rate
- Pegging on a single currency or a basket of
currencies or on gold
- Central bank required to maintain exchange rate
through market mechanism by buying and selling
currencies
Contents
1. For
- Confidence in trading between the pegged and
pegging countries because of less risk, less
fluctuations and more predictable outcome (example:
when signing contracts and forex trading)
- When there is confidence in trading, more investment
pours into the country
- Discourages speculations, thus discourages ditching
and excessive buying
2. Against
- Holding large amount of reserves, high opportunity
cost for holding such a large amount of money
(example: public goods and merit goods)
- Optimum exchange rate is hard to determine,
therefore possess tendency to over value or under
value the pegged rate
- Over value leads to uncompetitive export because
price of good is higher compared to the same goods
overseas
- Undervalue leads to inflation because price of goods
is lower ,more export and less import, demand for
currency increase but supply for currency decrease,
therefore GPL increase
Conclusion
- Fixed exchange rate is hard to impose and had been
eliminated through passage of time
- Managed exchange rate is what commonly used
throughout the world
- Intervention from time to time
- Freedom to float around
M/J 2009/P22 Question 4(a)(b) Aaron Luke
5) Conclude
In general, trade arrangements are a good idea.
However, trade arrangements that confine trade to a
specific region at the expense of wider free trade are
harmful and prevent the full benefits of trade from
being realized. Thus, trade arrangements should
avoid imposing external restrictions (e.g. tariffs) on
non-members, and should be as inclusive as
possible. Furthermore, trade arrangements should
continue to push for greater economic integration so
that the full benefits of free trade are realized.