Answer to Question #283057 in Macroeconomics for Nazirah

Question

After worst recession in Malaysia's history, strong economic recovery expected in 2021, Fitch's research unit predicts. Malaysia's real GDP in the second quarter of 2020 or from April to June as compared to the year before due to movement control MCO measures, which the unit describe as the worst contraction in Malaysia history. It also said -4.5 per cent outlook for Malaysia real GDP is due to forecasted weaker domestic and external demand in the second half of 2020 in line with expected continue restriction on travel and movement.

a)Based on above statement, do you agree or disagree the contraction fiscal policy helps to encounter the recession and recover the Malaysia economic in the second half of this year?

Answer 1

I agree since the contraction fiscal policy will lead to the economy growing steadily in the second half of the year producing at its potential GDP with only small inflationary increases in the price level