Question

Using the aggregate demand and aggregate supply model, explain the effects of the following on price and real income in Malaysia.

1. Consumers are worried with the country’s economic progress.

2. Firms have begun to use more high-tech machineries for production.

3. The Malaysian government has decided to spend on a major revamp of the public transportation system.

4.Malaysian higher education system has produced highly skilled employees.

Answer 1

1) consumer are worried about economic progressive as their income and price are reduce and aggregate demands decrease .due to this they spend less and save more for future. In such a case aggregate demand curve shift left as demand decreases.

2) as firm uses high tech facility to produce goods and thus efficiency of production increase , which led to increase productivity adn thus this increase in supply will shift supply curve to right,thus price level fall and as productivity increase ,which is related to increment in gdp as well as per capita income.

3) as government spending on public transportation system will led to more construction work as well as mainataince service which led to increase jobs and thus increasing in income will led to increase demand and thus overall increase gdp or output. This increase in aggregate demand will shift aggregate demand curve towards right as well make price to increase.

4) higher education will give more skilled labor .

As skilled labor are able to produce more or efficiently by using same amount of resources. This increased efficiency will increase productivity and output or gdp as well, which increase supply and thus increase in supply led prices to fall .