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Published by NUR ADRIENA RISHA MOHD RIDZUAN, 2021-03-26 02:45:02

ECO2023 ASSIGNMENT REPORT GROUP 3

ECO2023 ASSIGNMENT REPORT GROUP 3

Macroeconomics
ECO2023

Topic
Group 3

LECTURER’S NAME: Pn. Hadrah Hanum Binti Ramlee

NAME ID NUMBER

1. NURUL NUR ADILAH BINTI ISMAIL BMF20-07-042

2. AININ ZULAIKHA BINTI ZAZALLI BMF20-07-046

3. NUR SYAHIRAH ATIQAH BINTI SHARUDDIN BMF20-07-047

4. NUR IZZATI MAIZURAH BINTI B.OLI MOHAMMED BMF20-07-045

5. NOR ALYA DAYANTI BINTI MOHD AZIZI BMF20-07-086

6. NUR ADRIENA RISHA BINTI MOHD RIDZUAN BMF20-07-044

CLASS DBF3B

TABLE OF CONTENTS

a. Definition of Inflation...................................................1

b. Types of Inflation and Relations to Pandemic Covid-
19 issues. ...........................................................................2

Types of Inflation ...............................................................2
Relations to Pandemic Covid-19...........................................3

c. What Are Your Experiences of Markets in The Times
After the Commencement of This Pandemic? .................4

a. Definition of Inflation

Inflation is an important measure of the state of the economy. Inflation occurs
when there is a continuous increase in the general level of price. It reduces a person’s
income by reducing the purchasing power of money. There are three main criteria for
inflation. Firstly is, all the goods and services in the economy must experience a rise
in prices. For example, if the price of gasoline increases it is not an inflation, this is
because gasoline is the only goods that is affected. Next, inflation also is a continuous
increase in the general price level in the long term. For example, if prices of the goods
increase only once, but did not continue increasing, we did not call it an inflation.
Lastly, inflation is also an unlimited increase in price level. For example, the increase
in the general price level is very high. In short, if the rising level of prices in an
economy does not include the criteria it is not known as an inflation.

Not only that, inflation can be distinguished based on the increment of the
general price level. Based on the concept, inflation can be grouped into seven main
degree and that is the moderate inflation, creeping inflation, galloping inflation,
stagflation, hyperinflation, repressed inflation and lastly the deflation.

There are a positive and negative effects of an inflation in a country. But
generally, inflation affects the total production, consumption and income distribution.
Inflation causes the general price levels to rise. Thus, the real income of the population
will decline and reduce the purchasing power of consumers. If the economy has
reached full employment, inflation will increase the general price level without
increasing the total output. This makes the cost-of-living increases and the standard
of living declines. This is because the value of your bank balance will decrease as it
takes more money to purchase the same goods. Inflation also can increase the
opportunity cost of holding money, uncertainty over future inflation which may
discourage investment and savings. If inflation were rapid enough, shortages of goods
can happen as consumers begin hoarding out of concern that prices will increase in
the future.

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b. Types of Inflation and Relations to Pandemic
Covid-19 issues.

Types of Inflation

1. Cost-push inflation
- where prices increase as the cost of producing goods and services rises.
This refers to an increase in the general price level associated with an
increase in production costs such as raw materials and other components
used in various industries' production processes. This may be due to rising
global commodity prices, such as oil, copper, and agricultural products used
in the food processing industry. In general, businesses can pass on cost
increases to customers by increasing prices in order to protect their profit
margins. Similarly, increased labour costs are caused by inflation, by a
higher wage increase than an increase in productivity. When unemployment
is low (skilled work), wage prices will rise and when they expect higher
inflation the people will become scared and demand higher wages to protect
their real income. The cost of production per unit will rise as a result of this.
As a result, the cost of the final product or service that is manufactured and
provided rises.

2. Imported inflation
- An increase in the cost of imported goods has resulted in a general and
long-term price increase. This price rise affects the cost of raw materials as
well as all imported goods and services used by businesses in a given
country. Cost inflation is another name for imported inflation. Imported
inflation is the result of an increase in the price of imported products, which
include finished goods, partially finished goods, and raw materials used in
the manufacturing process.

3. Demand-pull inflation
- When resources are fully employed and aggregate demand is rising at a
time when Short Run Aggregate Supply (SRAS) is inelastic, demand-pull
inflation is likely. Demand pull inflation is largely the result of allowing the

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level of AID to rise too quickly in comparison to supply side capacity. Too
much money chasing too few goods is another term for this situation. As a
result of the excess demand for goods and services, businesses are under
pressure to raise prices in order to boost profit margins. Consumption,
government spending, investment, and net export are all potential sources
of demand-pull inflation. Prices will rise if the AD rises faster than the supply
of goods and services. The economy will reach full employment as a result
of the rise in aggregate demand, as it will be unable to meet the rising
demand. As a result, prices will rise when demand outstrips supply.

4. Structural inflation
- When a government pursues an overly loose monetary policy, structural
inflation occurs. When a central bank prints too much money or keeps
interest rates too low for too long, the value of each unit of currency falls
more than it would if demand were to rise. This occurred as a result of
changes in the economic system's structure and mismanagement of a
country's monetary policy.

Relations to Pandemic Covid-19

• Based on pandemic covid-19, we know that inflation in Malaysia is increasing.
The types of inflation that involved is cost-push inflation and structural inflation.
This is because, in this pandemic Covid-19, people tend to buy more basic
needs as the result of panic buying because of the restriction orders from the
government, as it is one of the ways to stop the covid-19. This causes the
country to experience a high demand and rise of prices for raw materials and
other substance. Moreover, the central bank has been giving a low interest rate
to help the people and the country economy. But it has been for too long and
might causes the value of each unit of the currency to decrease more than we
have expected. In conclusion, inflation also happen while we are in this
pandemic situation.

3

c. What Are Your Experiences of Markets in The
Times After the Commencement of This
Pandemic?

In the times after the commencement of the pandemic, we have
experienced many effects towards the markets. The spread of Covid-19 has
crushed the stock market and caused a rapid and historic drop in economic
output. When the economy wants to improve and recover back, it was really
challenging because there are many problems for examples thousand people
remain unemployed and the stock market has surged to record highs. Other
than that, disruptions also happened in the supply of certain types of products
occurred to a small extent and certain types of services are much more severe
in the sectors of the economy most affected by the pandemic. There are
disruptions in the supply of services on the markets of tourists, foods, small
business and other economies.

Pandemic has changed the market scenario to a different level because
buyers and sellers both are more cautious now. Market is still in progressive
phrase. It will take more time to be stable like before. One of the important in
market is food supply. It has an impact on the whole process from the field to
the consumer. There are considerable concerns about food production,
processing, distribution and demand. This pandemic resulted in the movement
restrictions of workers, changes in demand of consumers, closure of food
production facilities, restricted food trade policies and financial pressures on
food supply. Governments should facilitate the movements of all the workers.

In addition, small farmers and small traders should be supported
financially. Facilities should change the working conditions and maintain the
health and safety of employees by altering measures. This way it will improve
the safety and decrease the duration of pandemic. Next, the commencement
has caused the closure of workplaces, educational institutions and temporary
restrictions in travels and social meetings. Working from home and online
meetings have become standard practice nowadays. Physical meetings in office
spaces are also replaced with online collaboration tools. 37% of consumers

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prefer to satisfy their core needs while staying indoor, 30% plan to shop more
online in the future. Furthermore, all the education sector has to learn using
online learning. All the students will be not in their school or college because
they have to stay at home and cannot learn face to face with their teacher or
lecturers.

For shopping and buying necessary foods or things at supermarket or
another place, there are new norms and rules that need to follow. For example,
drive through or an in-store pickup is replacing its card reading device to Tap
to Pay, QR scan or mobile wallet authentication replacing other traditional
payment methods like PIN-based authentication that are now not secure.
Maintaining customer relationships during a crisis is really important, those
organisations who master them will create greater value to their end users and
empower the business to stand from the competition. Brands that connect
through the right experience will surely have more customers. The pandemic
caused losses among small businesses just several weeks after the
commencement of pandemic happened. Some of the businesses had
temporarily closed and nearly all of these closures due to Covid-19. This
happened due to reductions in demand and employee’s health concerns as the
reason for closure, with disruptions in the supply chain being less of a factor.
Because of this pandemic, many markets have been affected and the
government need to be responsible of this problem very well.

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