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The government of Malaysia has spent RM2.9 billion for the
distribution of the second batch of 1Malaysia People’s Aid (BR1M 2.0) to over
6.8 million recipients. BR1M 2.0 was aimed to reduce the burden of the
low-income households.
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What is the effect?
With the distribution of BR1M 2.0, the government has
injected RM2.9 billion into the basic circular flow of income in the economy. This means that
the money supply in the economy is increased by RM2.9 billion. However, part of
the money will be withdrawn out from the circular flow of income in a closed economy because of
saving.
The recipients can either spend or save the money. Therefore,
the amount left after saving will be spent into the economy. Hence, increasing
the domestic consumption, this in turn increases the value of GDP.However, the real GDP value is expected to increase more compared to the initial change in spending due to the multiplier effect.
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What is the rationale behind the multiplier effect?
It is caused by the continuous flows of expenditures and
income. For example, dollars spent by A are received as income by B and then
spent by B and received as income by C, it goes on and on. Thus, the domestic
consumption is increased dramatically.
In conclusion, the distribution of BR1M 2.0 helps to
increase the real GDP by stimulating consumption with injection of money
In your opinion, is the distribution of BR1M a wise action?
ReplyDelete@Yseng Tan. Indeed it is, as it reduces the burden of the rakyat.
DeleteWill businesses receive any benefits from the distribution of BR1M?
ReplyDelete@tan Ah. I am suspecting that you are a businessman:). Businesses are definitely going to be benefited, especially the convenience goods sector. The rationale behind is that the recipients of BR1M will definitely purchase more convenience goods.
DeleteWhat makes the government to take the initiative to introduce BR1M?
ReplyDelete@Tiffany Phua. According to a report on New Straits Times, Bank Negara conducted a study on rising prices of goods and services with the rise in wages. It was found that the rise in wages grow slower than the rise in the prices of goods and services. The central bank then presented the finding to the government and advised the government to introduce programmes to narrow the gap.
Delete@js koot. In a closed economy, the equation for calculating the GDP is 'GDP=C+I+G' . where C is consumption, I is investment and G is government spending.
ReplyDeletewhat is the difference between closed economy and open economy??
ReplyDeleteClosed economy consists of 'households, firms, and government only. Whereas open economy consists of 'households, firms, government, and foreign sector.
Deletewho are the actual payers of the distribution of BR1M?????
ReplyDeleteGood question, the main source of income for government is tax. So, the government fund the payment from tax payers. In conclusion, tax payers are the actual payers of the distribution of BR1M
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