Question

Briefly explain how fiscal policy affected the aggregate demand and aggregate supply in economy by using one of the productive sector in Malaysia as an example.

Answer 1

Fiscal policy affected the aggregate demand and aggregate supply in malaysian economy. Through the changes of tax rates and government expenditures. These factors affect employment and household income, which affect consumer spending and investments. Monetary policy affects the money supply in the economy, thereby affecting interest rates and inflation.

Expansionary fiscal policies that are usually formulated in response to economic recession or employment shocks will increase government spending in areas such as infrastructure, education, and unemployment benefits.

These programs can prevent negative changes in aggregate demand by stabilizing employment between government employees and those involved in stimulated industries. The extended unemployment benefit helps stabilize the consumption and investment of individuals who are unemployed during the recession.

In Malaysia, through the government's fiscal policy on infrastructure construction and investment is an important tool for managing the economy. In addition, discretionary fiscal policies are also useful during economic crises. Vijayaledchumy (2003) emphasized that the Malaysian authorities tend to adopt discretionary fiscal policies to cope with the economic slowdown.

Malaysia, government spending is expected to affect construction, agriculture and manufacturing, as government spending focuses on infrastructure, trade and industry, and agricultural development. However, since all industries are affected to some extent by these taxes, it is difficult to determine exactly how total government revenue, direct taxes, indirect taxes, and non-tax revenue will affect different sectors