The effect of BR1M 2.0 on the GDP of Malaysia in a closed economy

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.

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 However, part of the money will be withdrawn out from the circular flow of income in a closed economy because of saving.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.

	GDP (increases) = C (increases) + I + G

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

Controversy over the rise in subscription price rate of Astro

 Astro is currently the dominant firm in TV broadcasting industry

An oligopoly market structure has the following characteristics:

• Few large producers
• Offering homogeneous or differentiated products
• Have control over their prices but mutual interdependence exists
• High barriers of entry

Astro is one of the few providers of pay TV service in Malaysia (few sellers). Due to the market structure, Astro has been able to increase its subscription price rate (control over the prices). Astro is exploiting its exclusive rights (barriers of entry) of broadcasting various  channels to increase the subscription price rate. One of the exclusive right is broadcasting the Barclays Premier League (BPL). Therefore, Astro does not loose subscribers when it increases the subscription price rate of certain exclusive channels. 

Many concerned customers have voiced their objections over the price hike.

 “I do not agree with the price hike, as its broadcasting is often disturbed especially when it rains, what is the rational that Astro wants to burden their customers more?” Steven Ong said

“Is Astro really increasing its price again? It’s hard for me, with a small income, if Astro increases the price, then maybe I have to terminate my Astro account,” Noriah Ali said

What is the reason behind the price hike in 2011 July?

The price hike is mainly due to the content cost has gone up.

In my opinion, Astro should not pass the cost to burden the low-income customers. Astro should instead try to reduce the operational cost by operating the business more efficiently and charge the advertisements fees higher to increase the revenue. Moreover, the government should regulate the pricing practices of Astro strictly and take serious action against Astro's price hike.

Reference
http://www.theedgemalaysia.com/first/212226-new-ruling-could-end-astros-monopoly-on-sporting-events.html