Macro Economic Policy Paper

In macro economy, there are three main concerns which are inflation, output growth and unemployment. There are three main parts in the labor market which are employed, unemployed and not in labor force.

Employment is any person who is sixteen years old or older who works for pay for one or more hours per week either for someone else or his own business, who works without pay for fifteen or more hours per week in a family enterprise and who has job but temporarily absent with or without payment.

Unemployment is a person sixteen years old who is not working but available for work and has made specific efforts to find works during the previous 4 weeks. A person who is not looking for jobs is not in the labor force because he or she either does

By implementation of goods and services tax (GST) will lead to expectation of weak global economy growth according to “Business Today”. In the future, the consumers will limit their spending as the government implements the new tax system (GST). Based on the prediction by Mr. Chan Ken Yew, Head of Research, the consumption will decrease from 6.1% to 5.6%.

In addition, the journal by CPPS Policy Paper Series stated the purpose of goods and services tax (GST) is to improve the procedure of tax collection. As a value-added tax, the goods and services tax (GST) is chargeable to the final consumer and it will increase the tax burden to consumer when they purchased the goods or services as the input price and selling price increased. From the articles that we found, we know that unemployment rate of Malaysia is decreasing recently. When unemployment rate is decreasing and firms need to hire more employees, they will spend more money on salary to hire a worker. Therefore, it will lead to an increase in wage rate. Thus, it will increase the cost of production since employers need to pay higher salary to their employees. When cost of production increase, suppliers will choose to reduce the supply of goods and services in the short run. Consequently, the aggregate supply will decrease in short run, therefore Short Run Aggregate Supply (SRAS) will shift leftward from SRAS1 to SRAS2 (Refer to Figure 2). Then, output will

However, the government chose to implement contractionary fiscal policy which imposes goods and services tax (GST) in coming month which is 1st April 2015. GST requires all the businesses in Malaysia with RM500, 000 and above of annual sales turnover to be responsible to register under GST. The imposition of GST is increasing tax to citizens, because there are some businesses did not have any sales and services tax originally. The increasing of tax has caused disposable income of consumers decrease, consumption decrease and aggregate demand (AD) decrease. Therefore, aggregate demand curve will shift leftward from AD1 to AD2 (Refer to Figure 2). This will lead to the output decrease further from Y1 to Y2 and price decrease from P2 back to P1 (Refer to Figure 2). Even price level of good and services decrease, but it is not a good sign for the country because the output is