Keynesian theory proposed by John Maynard Keynes claimed that active authorities intercession is the cardinal factor for economic growing and stableness. Specifically, this economic sciences theory recommends that increasing authorities disbursement or diminishing revenue enhancement rates will be the most appropriate method to excite aggregative demand. Subsequently, an addition in aggregative demand would convey a greater addition in the national end product.
From our observation, Keynesian theory is applicable in Malaysia. One of the best state of affairss to turn out the claiming of Keynesian economic sciences would be during the Asiatic Financial Crisis on 1997 to 1999. In 1998, Malaysia ‘s Gross Domestic Product ( GDP ) suffered a contraction of growing rate 7.4 % . For illustration, building sector shrunk 23.5 % , fabrication sector contracted 9 % , and the agribusiness sector shrink 5.9 % ( The 1997-1998 Asiatic Financial Crisis in Malaysia, 2010 ) . Besides, Malaysia is an export-driven state with big portions of exports and imports in GDP. During that clip, the contraction in export is the most serious ground which burdened the whole economic system.
To retrieve the economic system, Malaysia authorities had implemented expansionary financial policy by increasing authorities disbursement in order to excite aggregative demand. From the facet of authorities disbursement, authorities disbursement is one of the 4 constituents of aggregative demand in the economic system. Because of the positive relationship between authorities disbursement and aggregative demand, increasing in authorities disbursement helps in stimulate sum demand which recover the economic system from recession.
Government spends money in several ways, such as military, services ( e.g. : instruction, health care ) , transfer payment ( e.g. : subsidies, societal public assistance ) and so on. In July of 1998, the authorities launched a financial stimulus bundle of entire RM7 billion to back up economic activities and prolong growing to get the better of the negative effects of the recession. The financial stimulation bundle was allocated in the undermentioned development outgo: RM2.2 billion for Dana Pengurusan Harta, RM1.5 billion for substructure and public comfortss, RM1 billion for instruction, RM0.65 billion for cyberview, RM0.35 billion for agribusiness, RM0.3 billion for wellness, and poorness obliteration severally, and RM0.2 billion for industrial development, for lodging, for rural development severally ( Economic Stimulus Package: How Effective Are They? ? , n.d. ) . Associated with positive consequence of pecuniary policy implemented by Bank Negara Malaysia which will be discussed in following subdivision, accordingly, the economic system recovered its growing from recession, whereby its GDP growing rate additions to +6.1 % in 1999 from the initial -7.4 % in 1998.
Subsequently on during 1999 to 2003, the authorities was still implementing the financial policy in expansionary stance, due to the uninterrupted economic uncertainnesss. Consequently, Malaysia was able to keep a positive growing rate. Nevertheless, during 2007, the planetary fiscal crisis occurred which contributed another hard twelvemonth to Malaysia. The great negative impact of the planetary fiscal crisis would be a prostration of exports to United States. As a consequence, Malaysia had a contraction in aggregative demand, which led to decrease in economic growing of -1.5 % growing rate.
Again, in order to countervail the diminution in aggregative demand because of the important diminution in exports of Malaysia, the authorities had launched 1st financial stimulation bundles ( EPS1 ) of RM7 billion in November 2008, and 2nd bundles ( EPS2 ) of RM60 billion in March 2009. As general, the chief 3 facets of EPS1 were:
Guaranting citizens ‘ wellbeing.
– E.g. : edifice extra low cost houses, upgrading and mending of public transit ( Commuter, Bus, and LRT ) , and adding concern premises for small/medium enterprisers.
Developing quality human capital
– E.g. : Skill Training Fundss, young person skill preparation plans, preschool instruction and so on.
Strengthening national resiliency
– E.g. : upgrading and care of public comfortss ( schools, infirmaries, roads, constabulary Stationss ) , and implementing High Speed Broadband Project.
While the EPS2 of RM60 billion was implemented with the intent of:
Reducing unemployment and increasing employment chances
– E.g. : making 163,000 preparation and supplying employment chances, etc.
Easing the load of citizens
– E.g. : Allocating RM1.154 billion to supplying subsidies on day-to-day nutrient basics such as sugar, wheat flour and staff of life, and toll subsidies, increasing house ownership, and etc.
Helping the private sector in covering with the crisis
– E.g. : Reducing the cost of concern, supplying Working Capital Guarantee Scheme of RM5 billion as working capital for companies with stockholder equity less than RM20 million.
Consequently, the economic system recovered its growing from recession, whereby its GDP growing rate additions to +7.2 % in 2009 from the initial -1.2 % in 2008.
In a nutshell, Malaysia authorities believes that by implementing expansionary financial policy, it can efficaciously excite sum demand which will retrieve the economic system from recession. Therefore, Keynesian theory is proven as it is applicable in Malaysia.
