Macroeconomics

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Macroeconomics
News Article Analysis (I)

Topic: Inflation and Unemployment
Headline: Economics Watch
Source: The Edge Malaysia (from LexisNexis database)
Date: 26 October 2009

Summary
Malaysia’s Consumer Price Index (CPI) experienced a decrease – the fourth consecutive month of decline for the index that measures the country’s inflation. The decrease in index from last year December to this year December is due to the changes in petrol and diesel prices. However, there was an increase in CPI during the period of January to December 2008 to 2009.

Economic Analysis
Consumer Price Index (CPI) is a measure of the average prices of a fixed “basket” of goods and services purchased by consumers. The price level can be measured using the CPI.

Inflation is defined as the persistent and sustained increase in the price level of goods and services in the economy. Inflation occurs when the average prices of goods and services rises, and not the change of one price. An increase in price level is known as inflation, while a decrease is known as deflation.

Inflation rate is the annual percentage change in price level. As mentioned in the article, Malaysia’s CPI decreased 2% from 114.7 (last year, September) to 112.4 (this year, September), with changes in price of petrol and diesel prices being the cause for decline.

Annual Inflation Rate = (CPI this year – CPI last year) X 100% CPI last year
= (112.4 – 114.7) X 100%
114.7
= -2%

Since the inflation rate is negative, it implies that there is a fall in the price level of petrol and diesel. Negative inflation is otherwise known as deflation.

However, the article also stated that the CPI increased by 0.9% from 110.9 to 111.9, for the period of January to September 2009 and last year, 2008, for the same period of time.

Annual Inflation Rate = (CPI this year from January to Sep) – CPI last year from Jan to Sep) X 100% CPI last year
= (111.9 – 110.9) X 100%
110.9
= 0.9%

Conclusion
Since the inflation rate is increasing, Malaysia government can step in to provide subsidies for the goods and services. By doing so, the inflation rate would decrease as more people would purchase the goods and services when prices are more affordable.

This article can also be linked to the topic on Fiscal Policy. The government can use a contractionary fiscal policy to close the inflationary gap and solve the inflation problem. It can be in the form of lower government spending (G) and/or higher taxes (T).

Decrease government expenditure| Increase taxes|
Decrease ADAD shifts leftReal GDP & Price decrease| Decrease disposable incomeDecrease consumptionAD decrease & shifts leftReal GDP & Price decrease|

LRAS
SRAS
AD
AD1
P (Price)
Y (Real GDP)
Y
Yf
P1
P

Macroeconomics
News Article Analysis (II)

Topic: Gross Domestic Product
Headline: South Africa; GDP Expected to Show Signs of Economic Recovery Source: BuaNews; Tshwane (from LexisNexis database)
Date: 24 November 2009

Summary
South Africa’s GDP contracted 6.4% in the first quarter of this year. However in the second quarter, the GDP contracted by 3%, indicated that the country is still in a recession. The main contributors to the decrease in economic activity for the second quarter of 2009 were the manufacturing industry, with a negative percentage of 1.6; and the wholesale and retail trade, hotels and restaurant industry, with a negative percentage of 0.6.

Economic Analysis
Gross Domestic Product (GDP) is the measure of the values of final goods and services produced within the domestic territory of a country during a period of time. There are three approaches in which GDP can be measured – Output, Expenditure & Income Approach.

For this case, whereby the article uses the expenditure approach, measures GDP by adding the total spending on goods and services by different groups in the economy.

Expenditure Approach consists of:
* Private Consumption...
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