The Government Roles in Battling the Global Economic Crisis

Global economic crisis seems to be such a large job to the whole universe. Hence, what is economic crisis? Economic crisis is a long term economic province with lifting unemployment, low monetary values, slow growing in overall economic activity and low degrees of trade and investing or a state of affairs in which some fiscal establishments or assets all of a sudden lose a big portion of their value. Therefore, the authorities had announced the 2nd stimulus bundle or mini budget of RM60 one million millions on the 16th of March 2009 because the first stimulation bundle, besides known as Economic Stabilisation Package of RM7 one million millions announced in November 2008, is said to be nonaggressive plenty.

First, the authorities programs to cut down the lifting unemployment job. The authorities programs to make a big figure of preparation and occupation arrangement chances in both public and private sectors. This is specially aim to the retrenched workers. They are taught new accomplishments to run into the industry demands and to heighten their marketability and employability. At the same clip, the authorities provides inducements for employers who employ local workers and doubles the levy for the employment of foreign workers. By making so, the employers in every industry would use local workers over foreign workers. Therefore, this would cut down the unemployment rate of our state and let the economic system to run at about full employment. Hence, the economic system would be able to run expeditiously, altering from economic inefficiency to economic efficiency. This is shown by the motion from a point beneath the curve ( inefficient point ) to a point on the curve ( efficient point ) on a Production Possibilities Frontier ( PPF ) as shown in Graph 1. In add-on, the authorities encourages alumnuss to venture into concerns, besides known as little and average endeavors ( SMEs ) . This would increase the figure of Sellerss. When this happens, the supply for any merchandise would increase. This can be represented diagrammatically through the rightward displacement of the supply curve as shown in Graph 2.

Next, the authorities plans to assist the society in higher instruction. The authorities programs to finance the tuition fees and grants for those who wanted to prosecute post-graduate programmes. Through this move, the alumnuss would prefer to foster their surveies instead than seeking for occupations as there are deficient Numberss of occupations available for all current workers, retrench workers and alumnuss, the new entrants to the market and forestall the alumnuss from being unemployed and idle. As a consequence, they will hold a better making for the hereafter needs. This means that there will be higher quality of labor and entrepreneurship upon the graduation. Therefore, there will be increment in the production capacity of the economic system. This can be shown by the outward displacement of the PPF as depicted in Graph 3. This would finally consequences in economic growing.

Besides that, the authorities is taking stairss to cut down the load of the society. The authorities provides subsidies on the basic necessities such as toll and nutrient. This is because necessities are inelastic goods. This can be farther explained utilizing the monetary value snap of demand ( PED ) which measures the reactivity of measure demanded ( Qd ) of a good to a alteration in its monetary value ( P ) . As shown in Graph 4, there is a smaller per centum alteration in measure demanded of a good than the per centum alteration in its monetary value when they are inelastic. This means that consumers are less antiphonal to alterations in their monetary values. Therefore, the entire outgo for the goods would increase when their monetary values increase. This besides means that consumers have to pay more to obtain these goods and causes some of the low-income groups can non afford them. By supplying subsidies, the cost of production of the goods would diminish. Therefore, the supply for these goods would increase and it can be shown by a rightward displacement of the supply curve like the Graph 2. As a effect, the equilibrium monetary values for the goods will fall as shown in Graph 5. In the interim, the authorities exempted revenue enhancement for those who are within the low-income groups. Recently, the Selangor province authorities even announced to exceed up this group of families ‘ income to at least RM500 a month.

The authorities besides plans to assist the companies and the little and average endeavors ( SMEs ) . Due to the economic downswing, most of the companies are confronting awful fiscal job which leads to retrenchment and sudden bankruptcy. In order to work out these jobs, the authorities allows them to transport the losingss made in the current twelvemonth back to the immediate preceding twelvemonth. This move will let these companies to obtain revenue enhancement refund. This is because this move will cut down the net income made in the immediate preceding twelvemonth, doing them to pay excess sum of revenue enhancement in the preceding twelvemonth and shall now acquire the revenue enhancement refund. In the interim, the authorities has lowered the corporate revenue enhancement rate. In add-on, the authorities exempts the levy payments to the Human Resource Development Fund for certain industries. As a consequence, the cost of production for these goods lessenings. This increases the supply for these goods. This is depicted by the rightward displacement of the supply curve as shown in Graph 5. As shown in the graph, the equilibrium monetary value for the goods will fall and this attracts more clients to demand for these goods. This allows the SMEs and companies to be able to gain more gross and net income.

Furthermore, the authorities is taking several stairss to increase the consumer leaning to pass. One of them is publishing authorities salvaging bonds. The one-year return rate by this is far greater than the one-year rate of return by bank. By purchasing these bonds, the society would be able to gain excess yet higher income. Meanwhile, the authorities besides encourages the workers to voluntarily inquire for the decrease of Employees Provident Fund ( EPF ) part from 11 % to 8 % . These moves would ensue in the increase of the families ‘ disposable income. Harmonizing to the Income Elasticity of Demand ( YED ) , which measures the reactivity of measure demanded for a good to a alteration in income, when income additions, the demand for both luxury and normal goods rises. This is shown via the rightward displacement of the demand curve like in Graph 6. However, the addition in demand for luxury goods is larger compared to normal goods.

Last but non least, the authorities programs to excite our Gross Domestic Product ( GDP ) . Before that, GDP is defined as the value of end product produced within the state in a twelvemonth. Obviously, since the demand for our export end products is diminishing at this period of clip, so the authorities has to increase the domestic demand market. One of the stairss is the execution of auto-scrapping strategy for our local autos, PROTON and PERODUA. This means that the any old autos can be sold to the Sellerss to buy a new local auto and one would be able to obtain RM5000 price reduction for the new auto. By making so, the monetary value of the local autos is lower. Therefore, the measure of local autos demanded additions. This can be portrayed by a downward motion along the demand curve as shown in the Graph 7. At the same clip, autos are elastic goods because the proportion of income spent on the good is really big. Therefore, harmonizing to the PED, when the monetary value of the autos decreases, the entire gross of the car industry rises. This is due to the higher reactivity of the consumers towards alterations in monetary value of the goods. It means that the addition in demand for local autos is larger than the lessening in monetary value of the autos. This is shown in Graph 8.

However, all the stairss planned and done is still unequal. The authorities should do the run of “ Buying Malaysia-made Products ” a successful 1. For illustration, the authorities can enforce a higher revenue enhancement on the import goods. By making so, the cost of production for the providers rises, doing them to cut down the supply for these goods. This can be represented by a leftward displacement of the supply curve. As shown in the Graph 9, the equilibrium monetary value of the goods rises. This consequences in the decrease of equilibrium measure for the goods. At the same clip, the demand for locally-produced goods rises as they are utility goods to the imported goods. Therefore, the demand curve for local goods shifts rightward as shown in Graph 6. The authorities besides can form mega-sales often which advertise and advance locally-produced goods. These would increase the demand for these goods. This can be represented by a rightward displacement of the demand curve as shown in Graph 6.

In decision, authorities dramas an of import function to cut down the hurting felt by the society in this economic downswing and demands to seek its best in bettering the state ‘s economic province. However, all parties, including the society and the private sector have to work closely with the authorities so that the authorities ‘s attempts in battling this crisis would be a successful one.


I would wish to thank and admit the undermentioned beginnings and mentions that I have used to compose this Economicss essay. The beginnings of my information are:

  1. The Star Online ( hypertext transfer protocol: // )
  2. 2nd of February 2009 ( Monday )

    3rd of February 2009 ( Tuesday )

    10th of March 2009 ( Tuesday )

  3. Dr Mahani ‘s Talk and Presentation Slides about “ The Current Global Crisis: Its Causes, Impact and Malaysia ‘s Response ” on 8th of April 2009
  4. Sloman, J, 2006, Economics, 6th edition, Prentice Hall, New York
  5. Lecture Notes 1 until 6, prepared by Ms Rabi’ah