Question

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

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

Answer 1

If the Malaysian government plans spend a makor amount for the betterment and improvement of public transportation system, it will help in the development and growth of the economy.

With better public transportation system, it will be easier for the employees to reach to the working place at low cost and faster. This will help to save time and increase productivity of the labour. So the cost of prproduction will reduce and it will increase the supply of the goods. This will reduce in decrease in price of the goods.

Better transportation system will help labour from remote areas also to reach areas where they can get employment. This will increase the supply of labour. The result of this will also be reduction in price.

If investment is made on transportation system, congestion on the roads will reduce. So it will be easier to deliver the raw material and other resources to the firms faster. This will also increase production.

The overall effect of better transportation system is reduction in prices of production, increase in productivity of lalabour. So the real income of the people of Malaysia will also rise.