Question

Explain the impact of Covid-19 on each GDP variable. (Malaysia)

900 words

Answer 1

The Corona Virus Pandemic is causing a deep impact to the society and the economy at large. Economist never had seen such conditions wherein establishments would remain shut for such a long period of time and recession would not be able to have corrected even with sufficient stimulus from the Governments and the Central Banks as people are scared to step outside as fear of the Virus looms further.

Increased issues for the government as well as reduced income for consumers and producers has been the core reason, why the gross domestic product, which is the final value of goods and services produced in a country in a year is said to decline very sharply.

The Gross Domestic Product measures variables such as Consumer Demand, Producers Supply, Government expenditure as well as Exports and Imports and their core difference. All of these items are critical in the calculation of the Gross Domestic Product and will see a huge change for Malaysia and for all other economies as well.

The same impact has been described as follows: -

1) Consumer Demand: -

As establishments remain shut, and the spread of disease is giving people no reason for them to step out, consumer demand for goods and services has been declining extremely sharply in Malaysia. The key things that the country produces are microchips, automotive equipment, circuits, rubber products etc all of which are seeing reduced demand. Consumer demand has a huge impact on other variables such as income and production as well. This can be explained as follows.

2) Producers Supply: -

The second component of the Gross Domestic Product is the final production which takes place in the country. As demand remains low, and producers are told to keep their offices shut so that the disease does not spread any further, production levels in the economy have also decreased substantially. The resultant is that people are losing their jobs, and the overall income level is declining whereas unemployment in the country is steadily rising also.

3) Government Revenue and Expenditure: -

As the producers supply and consumers demand is decreasing, tax revenue for governments has gone down substantially. The end result of this is that the collections have gone down drastically. On the other hand, the government is seeing increased expenditure in areas such as health care development which also means that the difference between collection and income has grown out to become very big.

4) Exports and Imports: -

The difference between the exports and imports is also gradually increasing. The world economy has seen a halt of commercial activity and demand is extremely limited. As a result, while exports of the country have reduced substantially, imports which are basic such as oil and petroleum products have continued while others have also shrunk. As a result, the gap between exports and imports is also rising.

A graphical explanation to the same is as follows: -

Here we see that the GDP falls and so does the price. The Demand for goods and services is seen to decline and so does the supply indicate a shift downwards. The new equilibrium is at a lower price as demand and supply begin to fall.

Conclusion: -

We can conclude by saying, that the economy is going through a tough time, wherein the demand for goods and services is declining and so is the supply. As a result, unemployment in the economy is rising and income levels have fallen sharply. The governments revenue in Malaysia is also falling and exports are falling as the need for goods which the country manufactures is no longer present in the international markets.

Please feel free to ask your doubts in the comments section.