Inflation faced by Malaysia-Free-Samples-Myassignmenthelp.com

Question: Discuss the Causes, Effects and Ways to Control Inflation using appropriate Examples and Diagrams. Answer: Introduction Inflation is referred to as the increase in the level of the prices of the services that has an effect on the overall financial system and the economy. With the increase in the level of the prices, the unit of the prices will affect the monetary conditions by the attainment of the lesser products and services. The rate of inflation measures the increase in the percentage of the prices of the services and the goods in an annual manner. The level of the prices increases in a rapid manner at the time of the higher inflation. On the other hand, the level of the prices decreases in a rapid manner at the time of the lower inflation. Inflation in Malaysia The phenomena of the increase in the level of the prices in a steady manner with no limitations are termed as inflation. Malaysia had faced inflation in the years 1973 and 1974 and the same was a part of the major exceptional years in the history of the country[1]. The inflation level faced the rise in both the local and the international markets in the year 1973 and the major reason for the increase in the inflation level of the world was in the year 1973 and 1974 was the increase in the price of the oils. The major reason towards the increased prices was the food shortages and the lack of the raw materials that arose from the worse conditions in the weather and the significant upturn in the total demand[2]. In the span of the years 2003 to 2012, the country had faced the highest rates of inflation in the year 2008 that was 5.4 percent. The lowest inflation rate was seen in the year 2009 that was 0.6 percent. Malaysia faced the era of stability and normalization in the year 2011 that came on to 3.2 percent. The Department of the Statistics of Malaysia is one of the largest responsible bodies and department that has a responsibility of analyzing the rate of inflation in the country. In the year 2012, the department at 1.70 percent observed the average rate of inflation. In the year 2003, there was an indication of the rate of inflation being 1.1 percent. The slower growth led to the differences among the years 2003 and 2004 that was approximately 0.3 percent. The inflation rate had increased to 1.4 percent and then by 3 percent in year 2005. The rate of inflation increased in a rapid manner from the year 2004 to 2005 that showed a difference of about 1.6 percent and the same continued to the year 2006 that was around 3.6 percent in total. Factors contributing the trend of the inflation rates The inflation rate has the ability of representing the modifications in the trend of the inflation rates. The rate had been highest in 2008 from the period among 2003 to 2012 that was 5.4 percent. The trend was stabilized in the year 2011 at the rate of 3.2 percent. The major categories of the inflation include the cost pull, demand-pull and built-in inflation. The trend of the inflation had many factors that contained the aggregate supply and demands[3]. The examples of the increase in the inflation rate included the rate of interest, government prints and expenditures, cutting of the taxes and other regulations. The reasons also contained the increase in the Purchasing Power Parity and the enhancement in the prices of the rates of wages and the raw materials. The higher inflation was also due to the increase in the fuel prices that led to the decline in the supply of the services and the goods overall. The decline in the supply of the goods and services led to the increment in the prices of the other services and good that contributed to the higher prices i.e. inflation of the country. The situation showed that along with the increase in the fuel prices, there was an increase in the price of the household and other major goods and services provided by the country. The prices of the fuel is under the decision making process of the government and the authority must have a serious outlook on the decision of the increment in the prices of the fuel. The government must take major steps as the increment in fuel prices has two major impacts towards the customers[4]. The major impacts include the increment of the cost of the users of the cars and the increase in the overall cost of operations of performing business. The print of the government can lead to the increment in the supply of the money that can contribute towards the inflation. The rate of the inflation gets higher with the supplied money and thus, the quantity of the money can increase with the decline in the rates of interest of the government. The production of the goods can decline, as the demand of the same gets higher as the money gets higher in the market. The government has the proper control and power on the supply of the money and the offered money results in the increase in the rate of inflation that arises by the print of the bills. Thus, the money that is printed in form of new money provides allowance to the goods and services in being purchased devoid of the actual or true exchange. However, in situations where the supplied money is increased in the market, there will be an increase in the usage along with the increase in the investments. The increased money can lead to an increment in the opportunities of jobs and the same will lead to an encouragement of the growth and development of the total economy of Malaysia. The increase in the rates of the wages is also among the major contributions that lead to the increase in the price levels. The increase in the labor can increase the wages for a single unit of labor[5]. Further, the higher wages will contribute towards the decrease in the supply and thus, the increase in inflation rates. The higher Purchasing Power Parity is also among the major factors and reason that will contribute towards the rate of inflation. The PPP denotes an equivalent amount and value of money and the increase in the PPP will lead to an increase in the demand of the goods and services of the consumers. On the other hand, the offered goods and services in the market lower down with the increase in the PPP. The other factors include the increased expenditures of government and the cutting of the taxes from the authorities. The expenditures of government include the operating and the developmental expenditures[6]. The aggregate demand increases with the increase in the expenditures of the government and further the level of prices will increase in a continuous manner. Next, the cutting of the taxes can lead to an increase in the demand and the continual increment in the demand will increase the levels of the prices. Thus, the factors that enhance the total aggregate demands can lead to a situation of inflation. Thus, the government must take steps in overcoming the problems in the longer run by increasing the quantity of the money that would be quicker and faster than the actual rate of growth of the economy. Based on the graph above, it can be seen that the rate of inflation increases and thus the rate of interest rates increases. Further, the same induces among the people to save money for the reduction of the quantity of money for the reduction of the rate of inflation. Measures undertaken The Government of Australia has taken various measures and has to take many measures that must be undertaken towards combating the inflation in the country. The actions undertaken by the government mainly supports the small and the medium level enterprises in the market[7]. The small and the medium level enterprises have a major position in the country as they can boost up the economical growth of the country. One of the major factors is the demand-pull inflation that denotes the increase of the demand of the goods and services in the market. However, the supply of the goods remains same, as there are a limited number of suppliers that produce the goods and services. Thus, there will be a rise in the prices of the products and the services that will increase the demand in comparison to the supply that will make the customers pay more towards the satisfaction of the requirements and needs. Thus, the government authorities have taken numerous steps in the implementation of the Special Government Funds for the smaller and medium-leveled enterprises. The Special Government Funds have been designed towards developing and nurturing the smaller and medium enterprises in the country that could help increase the productiveness of the goods and services in the country. The government had undertaken the provision of RM31.8 billions in the year 2007 by providing around 105 Special Government Funds[8]. The central bank i.e. Bank Negara of Malaysia has also allocated funds to the small and medium leveled industries, food industries and the new entrepreneurs. The central bank of the country had also launched the Micro Enterprise Fund and the same help the new startup businesses and the entrepreneurs for the operations of their businesses. The Bank Negara had approved funds towards the helping of the micro leveled enterprises and around 241 micro leveled enterprises had gained benefits from such funds that had been launched by the banks. Even though, there are funds that had been provided by the government authorities, there are numerous micro and small and medium-leveled enterprises that must be under the concern. Thus, the same will lead to the increment of the productiveness of the country and solve the problems and issues related with the demand pull inflations[9]. The central bank of Malaysia that is the central bank of the country had taken under application the policies of monetary nature that are helpful towards the combating of the inflationary conditions. The deposit rate of interest is also among the best ways to combat against the inflation of the country and the Bank Negara is responsible towards setting up the most useful rate of interest for saving the money[10]. The Bank will require the adjustment of the deposit of the interest rates to the higher rate for encouraging the people in saving more money in banks and reducing the amount of quantity in the market that would prevent the decrement in the values[11]. Further, the increment in the rate of interest will discourage the investors for the borrowing of the money from banks that can reduce the consumption and investment in the market that can reduce the rate of inflation. Conclusion Thus, from the above discussion it can be seen that the inflation rate had been increasing over the years in Malaysia and had been maintained by the government in the recent times. The major factors included the rise in the fuel prices, demand-pull situation and the increase in the rate of the wages of the labors of the organizations. The central bank of Malaysia that is the central bank of the country had taken under application the policies of monetary nature that are helpful towards the combating of the inflationary conditions. The deposit rate of interest is also among the best ways to combat against the inflation of the country and the Bank Negara is responsible towards setting up the most useful rate of interest for saving the money. Thus, the inflation of the country had been leveled in the recent times with the enforcement of such acts and regulations performed by the government authorities. Bibliography Abduh, M. and Idrees, Y., 2013. Determinants of Islamic banking profitability in Malaysia.Australian Journal of Basic and Applied Sciences,7(2), pp.204-210. Alam, A., Azam, M., Abdullah, A.B., Malik, I.A., Khan, A., Hamzah, T.A.A.T., Khan, M.M., Zahoor, H. and Zaman, K., 2015. 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Determinants of expected stock returns: Evidence from the Malaysian and Thai Markets.Available at SSRN,2167679. Vejzagic, M. and Zarafat, H., 2013. An Analysis of Macroeconomic Determinants of Commercial Banks Profitability in Malaysia for the Period 1995-2011. Zakaria, Z. and Shamsuddin, S., 2012. Empirical evidence on the relationship between stock market volatility and macroeconomics volatility in Malaysia.Journal of Business Studies Quarterly,4(2), p.61 Abduh, M. and Idrees, Y., 2013. Determinants of Islamic banking profitability in Malaysia.Australian Journal of Basic and Applied Sciences,7(2), pp.204-210. Alam, A., Azam, M., Abdullah, A.B., Malik, I.A., Khan, A., Hamzah, T.A.A.T., Khan, M.M., Zahoor, H. and Zaman, K., 2015. Environmental quality indicators and financial development in Malaysia: unity in diversity.Environmental Science and Pollution Research,22(11), pp.8392-8404. Ghazali, M.F., Lean, H.H. and Bahari, Z., 2015. Is gold a good hedge against inflation? empirical evidence in Malaysia.J. Malays. Stud.(Kajian Malaysia),33(1), pp.69-84. Hussin, M.Y.M., Muhammad, F., Abu, M.F. and Awang, S.A., 2012. Macroeconomic variables and Malaysian Islamic stock market: a time series analysis.Journal of Business Studies Quarterly,3(4), p.1. Kinuthia, B.K. and Murshed, S.M., 2015. FDI determinants: Kenya and Malaysia compared.Journal of Policy Modeling,37(2), pp.388-400. Leong, L.Y., Hew, T.S., Ooi, K.B. and Lin, B., 2012. The determinants of customer loyalty in Malaysian mobile telecommunication services: a structural analysis.International Journal of Services, Economics and Management,4(3), pp.209-236. Muda, M., Shaharuddin, A. and Embaya, A., 2013. Comparative analysis of profitability determinants of domestic and foreign Islamic banks in Malaysia.International Journal of Economics and Financial Issues,3(3), p.559. Ong, T.S. and Chang, Y.S., 2013. Macroeconomic determinants of Malaysian housing market.Journal of Human and Social Science Research,1(2), pp.119-127. Ramli, R., 2012. Inflation, Money Supply And Economic Growth: A Causality Analysis For Malaysia.Malaysia: Department of Statistics.Tarazi, R.E. and Gallato, C., 2012. Determinants of expected stock returns: Evidence from the Malaysian and Thai Markets.Available at SSRN,2167679. Shaari, M.S., Hussain, N.E. and Abdullah, H., 2012. The effects of oil price shocks and exchange rate volatility on inflation: evidence from Malaysia.International Business Research,5(9), p.106.