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The role of government in an economy

1. What do you understand by an economic system? Discuss the role of government in a market economy. Do you think that your government should play a more active role in the economy? Elaborate why and why not?

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An economic system deals with the structure of production, distribution of economic outputs, and consumption of goods and services in an economy The development of economic system is needed in the national community that address the problem of economics like allocating resources and scarcity of the resource.

The economic system arranges the relationship among people, institutions and government in order to resolve the problem of economic. It confronted with the different basic economy questions that require answer such as what to produce, how to produce it and for whom to produce.

The contemporary economic systems is classify into 4 type including capitalism economy, socialism economy, mixed economy and Islamic economic. In capital economic system, all main economic decision is determined by private owners in capital market with minimal government interference also know as free market economy or laissez faire. Transaction on the prices of goods and services are determined in a free price system by the buyer and suppliers in open markets. The socialism economy is an economic system in which the central government controls most of property resource and major economic decisions regarding the production and distribution of goods and services through a central planning board’s. The central planning boards’ decide on the output between capital and consumers goods, and the capital goods are allocated among industries and enterprise according to government directives. A mixed economy reflects both capitalism and socialism to solve basic economic problem involve by both private and public sectors in allocation of good and service. Problem face by some of the public and private ownerships on the resource is based on supply and demand conditioned by price mechanism and economic growth of the country development. Therefore, government intervention in the economy for certain essential service such as illegal product categorized as unsafe goods like military items, and requirement such as schools, hospital, police force and army. And execute certain project or produce products that private sectors consider unbeneficial e.g conduction of low cost house in Malaysia.

The role of government in a market economy deals with problem associated with market failure. Market failure has negative effect on the economy because allocation of goods and service by a free market is not efficient. One of the causes of market failure is the existence of monopoly of power by certain party such as the price of resources is higher than marginal costs can lead to allocation of inefficiency and “pareto sub-optimal equilibrium” in the market. Inequality may also cause market failure through the economy, as the income of different group of individual lead to wide gaps of living standard.

Market failure can be corrected through government action or decision to reduce inequality by changes in tax and benefit system such as national minimum wage. Government has the authority to enforce property rights of ownership, protecting public property, encourages production and exchanges of goods and service [1]. Government has the roles to achieve economy stability and growth by attempting to maintain steady growth, provide high level of employment, and ensure price stability in the market. Through vital support in spending and tax rates it can slow down or speed out the economy growth [2].

Malaysia government play significant role in the economic growth of the country, by providing knowledge to the public on the current market and economic development through various tools such as through education and media. Malaysia government has the role to provide goods and service to public such as highway, education, national deference, security etc. Malaysia is the 29th world biggest economy in the world and based 16th largest in the world trading economy with a growth rate of 5% to 7 % since 2004.

Malaysia government provides the basic necessities to the public such as clothing, rent, fuel, utilities and transport and communication, where Malaysia government help reduce poverty among the rural population. The effective involvement of government in service and implementation of development program give a huge transformation to the nation growth.

. The involvement of Malaysia government in too many firm and industries could lose concentration and less focus on the development of several industries, this factor could lead to unhealthy competition among the private sector without control by the government.

[1] Mike P. McKeever,” The Mckeever Institute of Economic policy”, San Francisco in 2003

[2] “Government’s Role in the Economy” U.S Department of State. Taken on 10 March 2011


2. What are the characteristics of the Malaysian economy. Discuss its weaknesses and suggest appropriate policy proposals to srengthen the economy in order to realise the objective of becoming a developed country by 2020.

Malaysia economic system is based on mixed economy system that both free market and governments have significant effect on the economic development of the country [1]. By year 2009, Malaysia has reached per capital income (GDP/PoP) of RM 24,541(USD 6,812) and from 2004 to 2010, Malaysia economy growth performance at a sustained rapid growth averaging 5% to 7 % annually [2].

Malaysia economy is highly trade dependent of goods with several countries especially in the western market and Asian market such as China, Japan, Korean, and etc. Malaysia government also promote an open developing economy to private enterprises to take part in country development projects [3]. Malaysia is commonly known as a middle-income country, it functions by well distribution of wealth among the country population and equality among the public. Malaysia economy has been depend on export of product from raw material driven by manufacture exports such as electrical and electronic products, petroleum and gas (14th biggest world gas producer), palm oil products, rubber products and timber products. Malaysia economy also focuses on minor products to be export such as agriculture products, tourism, education, ICT, consultancy and etc.

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In the early economy of Malaysia in year 1957 till 1994, Malaysia economic resource of product tin and rubber is exploit by the British. And in late 1970’s, the economic is export oriented industrialization stared with electronic industry at Free Trade Zone. The evolution and development of economy from year 1995-2009, based on knowledge-based economy (KBE) provide the platform where growth is focus on acquisition, utilization and dissemination of knowledge. These accelerate economy to a higher development of knowledge-based activities, innovation of product and intensification of Research and development activities. The changing of economy would strengthen Malaysia toward achieving the government vision 2020 to propel Malaysia to being as an advanced nation with sustainability of economy growth.

Malaysia government depends highly on the trade and export system economic, which expose Malaysia to worldwide economy recession. During recession period, economic hardship remain in the country and high rate of unemployment among the workforce affect the living of people in the country. The introduction large scale of foreign labour cause shortage of skilled workers in certain sectors such as construction and manufacturing leading in Malaysia work force whereby a foreign exchange exits drain in Malaysia economic. The domestic private sector failed to deliver target set by the Malaysia plan, where the domestic investors feels that the government is not focusing on domestic investment [4].

The government development plan, called the Malaysian Plan given way to strengthen the growth of Malaysia economy to achieve the ultimate objective aim for Malaysia by the year 2020[5]. The plan was focus on accelerating the growth of economy structure, divided into three sectors such as agriculture, manufacturing and services. A unit of agency under the Prime Minister’s Department called as Economic Planning Unit, is responsible for driven Malaysia’s through various measure such as policies and strategies for socio-economic development.

[1] Shri V.Mahalingam, First Secretary & HOC from University Grants Commission 2006-07 U.G.C

[2] Economic of Malaysia, from Wikipedia the free encycolopedia taken on 10 March 2011

http://en.wikipedia .org/wiki/Economy_of_Malaysia

[3] “Malaysia Information” taken on 10 March 2011


[4] Malaysia ” Information and Communication Technology” taken on March 10 March 2011


[5] Joseph Chin of the edge Malaysia article on ” Guan Eng wants allocation detail under Tenth Malaysia Plan” on Monday,14 february 2011 16.44

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