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Economic Theory and Concept

Chapter 1 Economic Growth & Economic Development Chapter 2 Social and Economic Reform/Evolution Chapter 3 Economic Factors Chapter 4 Economic Strategies Chapter 5 Financial Economic Managing Economy and Financial Policy Chapter 6 Financial Economic Cause, Implication and Application Chapter 7 Economic Globalisation

ECOB 313 ECMB 313 MALAYSIAN ECONOMY

CHAPTER 1: INTRODUCTION

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CONTENTS
Economic Fundamentals
Economic growth Development

Social and Political Macro Economic and Sector Analysis Primary Sector Secondary Sector Tertiary Sector Malaysian Economy Performance for the Past Decade

Economic Fundamentals
What is Economics?
Refer to studying the way scarce resources are allocated among competing wants; or Examining the questions of how much of which goods and services produce at what prices and for whom.

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Economic Fundamentals
Macroeconomics
Refer to studying of economy as a whole and involves looking at aggregates: total output, the general price level, employment, and the balance of payments

Microeconomic
Refer to study of an economys component parts: individual firm and industry output, individual prices, particular exports and imports, and so on

Economic Fundamentals
Economics is concerned with interrelated and interdependent economy changes and events to make sense that the important of economic information and its relationships Malaysian economy reasoning has a logical structure which it builds on its self and It is important to understand the cause-and-effect linkages that run through economy theory and financial markets This course concentrate on the development, issues, impact (effects), factors (causes) to Malaysian Economy and its financial markets

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Economic Fundamentals
The Malaysian economy, like all other economies, must perform certain functions at all the way those Government decisions are made that determine a societys wealth and prosperity increases strongly. The functions of an economy refer to the general decisions that every economic system must facilitate for the production and distribution of goods and services

Economic Fundamentals
The Economic Problem
What to produce? Which goods and services will be produced and which will not How much to produce? How much of each goods and services will be produces How to produce? How will resources be combined to most efficiently produce the goods and services wanted by society How to maintain present production and expand future production? What proportion of current output will be devoted to consumer goods and what proportion will devoted of capital goods How will total production be distributed among members of society? Who is to receive the goods and services which society has produced

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Economic Fundamentals
Profound problems to solve; Economic system should be flexible and responsive enough to keep on solving the economic problem as economic, political and cultural dimensions of nations evolve over time

Economic Fundamentals
Key Economic Player
The Private sector Household
Activities of household in earning and spending/saving

Company/firm
Engaged in the production and distribution of good and services

Financial
Participate in borrowing and lending money and other related financial services

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Economic Fundamentals
Key Economic Player
Government/Public sector
Things that cannot be adequately provided by private sector E.g defence, pension, roads, etc

Overseas sector Involves 3 kind transaction

Exports of goods and services Import of goods and services International capital flow

Social and Political Setting

Why Government set the social and political policies for country? Government set the social and political policies for country is to: manage and drive economy to growth; and Build and develop the country economy

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Economic Growth
Economic Growth refer to the increase of a countrys national income, or sometime is per capita national income Normally its refer to growth of Gross Domestic Products (GDP) Economic Growth is the process by which the productive capacity of the economic is increase over time to raising level of national income By maintaining the economy growth (e.g 5% - 7%), the country can achieve the economic development

Economic Development
Economic development refer to the changes in the social and economic equalisation, employment, education and current need of society. Measurement of development involves in the quantitative and qualitative dimensions Economic development also refers to social and technological progress Economic development typically involves improvements in a variety of indicators such as literacy rates, life expectancy, and poverty rates.

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Economic Development
Conventional Perspective
Development = Growth + change

Quantitative *Physical *Environmental

*Socio economic *technological

Economic Development
Conventional perspective
The growth in: the physical development in term of the increase output and services the environment that been utilised efficiently to ensure that improvement in living standards without compromising the need, interest and welfare of future generation

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Economic Development
Economic Development also refer to: Socio-economic changes means society have equally opportunities in education, goods and social amenities such as health, water, electricity. Technologies changes means products innovations, research and development in production output and services

Economic Development
Generally Economic Development can be define the process of improvement the quality of society life.

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Economic Dualism
Dualism in the economic: is a two set of economic processes within the same political or national social framework. In the case of Malaysia its referring to the formed by subsistence agriculture production of basic commodities and industrial goods for the international market

Macroeconomic and Sector Analysis

Overview
Highly trade-oriented and open economy which was historically agriculture based However, manufacturing sector has increasingly become the major contributor to economy growth Economy system of Malaysia is based on private enterprise with the Government playing an active role in economic planning in order to promote balanced economic growth and social progress

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Macroeconomic and Sector Analysis

Performance 1980 2009F
15 10
5
%

0 -5

-10 Year

Macroeconomic and Sector Analysis

Economic Structure
Composition of various economic activities In case of Malaysia the economic structure divided into three main sector namely are primary, secondary and tertiary.

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Macroeconomic and Sector Analysis

GDP

Primary Sector
Malaysia economy primary structure are agriculture and mining sector The sector contribute about 15.3% of the GDP (2008E) Create 12.3% employment Agriculture - Rubber cultivation, palm oil plantation, rice cultivation, fishery and forestry activities Mining production crude oil
15.3% 52.8% 31.9%

Agriculture & Mining Manufacturing, Industrial & Construction Services

Macroeconomic and Sector Analysis

Secondary Sector
Consisting of manufacturing, building and construction The sector contribute about 31.9% of the GDP (2008E) Create 35.6% employment Manufacture, electrical, electronic, telecommunication equipment, machinery & equipment, assembly, plant and processing plant

GDP
15.3% 52.8% 31.9%

Agriculture & Mining Manufacturing, Industrial & Construction Services

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Macroeconomic and Sector Analysis

Tertiary Sector
Based on trading and services Largest sector in Malaysian economy Export and services contribute 52.8% of the GDP (2008E) Create 52.1% employment Utility, retails, financial services, tourism, education, health services, real estate, port facilities, air transportation, communication, Government services and others

GDP
15.3% 52.8% 31.9%

Agriculture & Mining Manufacturing, Industrial & Construction Services

An Overview Malaysian Economy For The Past Decade

Economic 1970s
Year GDP % 10.6 8.5 Manufac Services turing % % 6.7 11.4 12.2 13.9

A phase in Malaysia economic 1970-75 transformation 1975-79 Shifted to export-oriented industrialization Agricultural diversification apart from rubber, timber and palm oil export commodities the production of crude petroleum begun significance contribution to country economy

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An Overview Malaysian Economy For The Past Decade

Economic 1970s
export commodities the production of crude petroleum begun significance contribution to country economy
GDP
15.3% 52.8% 31.9%

Agriculture & Mining Manufacturing, Industrial & Construction Services

An Overview Malaysian Economy For The Past Decade Economic 1980s

Development plan were finance by public funds Economic growth was accompanies by increasing budget deficits and high level public debts Economic structure shift from primary commodities to modern industrial especially in high technology manufacturing were expand country export base and improved the balance of payment position Other supporting infrastructures were build up Supporting industries such Small and medium industries given attention

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An Overview Malaysian Economy For The Past Decade

Economic 1980s, cont
Sustained growth brought significant improvements in the standard living and social cohesion Economic diversification with deregulation and liberalisation of the financial system also help transformed country into a middle-income emerging market

An Overview Malaysian Economy For The Past Decade

Economic 1990 - 1997
The expansion phase GDP growth average at 9.3% per annum Economy growth strong until the financial crisis in 1997

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An Overview Malaysian Economy For The Past Decade

Economic 1997 - 1999
The slowdown phase Due to the currency crisis Portfolio outflow Decline in equity and property value

An Overview Malaysian Economy For The Past Decade

Economic 1999 - current
The recovery phase supported by government accommodating macro economy policies Reduce vulnerability of financial system High world demand for electronic Build up of international reserve, decline unemployment and inflation low

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Summary
Theory of economic fundamentals Economic growth and development Dualism economic Economic sector Economic performance

Exercise - Notes
Evaluate Malaysias Economic Performance based on GDP growth and its macroeconomic components and sector, effect on financial market and capital market, government policies and external factors for the period of
1990 1997 1997 1999 1999 current

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Class Participation & Activity

Collect the Malaysian Key Economy Indicator Period yearly 2004 2008 Source:
Jabatan Perangkaan Malaysia Bank Negara Malaysia Kementerian Kewangan

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