Question

in Malaysia:

(a) Select THREE (3) items that are not included in the calculation of GDP and explain why they are not included. [15 marks]

b) Provide FIVE (5) policies or methods that the government use to promote economic growth. [15 marks]

Answer 1

(a) Select THREE (3) items that are not included in the calculation of GDP and explain why they are not included. [15 marks]

In GDP calculation for any country following items are not considered:

i.Goods produced outside the boundaries of Malaysia as it is not 'Domestic' produced good

ii. Sale of used goods as GDP was already calculated for that good.

iii. Black market items.

iv. Intermediate goods. For example from cotton to shirt- a cloth made will not be considered but only value added while making cloth will be considered.

b) Provide FIVE (5) policies or methods that the government use to promote economic growth. [15 marks]

Economic growth or shift of production possibility curve to the right and shift of long run aggregate supply curve to the right depends on two major factors: quality of resources and quality of resources.

Quantity of resources will increase by increase in retirement age, immigration of skilled labor.

Quality will increase by advanced skills training, better healthcare and in short by investment in human capital.

Generally govt has expansionary fiscal policies as a tool to promote Economic growth : reducing Taxes and raising govt. spending. Central bank may focus on expansionary monetary Polcy by increasing money supply and reducing interest rates.

Govt. may also focus on supply side policies , they are of two types: Market based and interventionist based.

Market based policies involve labor market reforms, intervention by govt like privatisation and deregulation. This will help developing capital goods as doing business will be easier.

Interventionist based policy involves focus on skills, health and education, focus on improvement of technology.

All policies are ideal for economic growth and development. Limitations of these policies are as below:

a. It needs a lot of time to make these policies practically possible and also needs a lot of investments. Poor countries are stuck in poverty cycle and hence find it difficult to break this cycle.

b. All these policies may not care for environment conservation and only commercial interests can be protected.