UNIVERSITI MALAYA

UNIVERSITY OF MALAYA

PEPERIKSAAN IJAZAH SARJANA MUDA EKONOMI

EXAMINATION FOR THE DEGREE OF BACHELOR OF ECONOMICS

SESI AKADEMIK 2021/2022 : SEMESTER 2

ACADEMIC SESSION 2021/2022 : SEMESTER 2

EIA2004: Pemikiran Kritikal Dalam Ekonomi

Critical Thinking in Economics

Jun/June 2022 Masa : 3 jam

Time : 3 hours

ARAHAN KEPADA CALON:

INSTRUCTIONS TO CANDIDATES:

Calon dikehendaki menjawab SEMUA soalan.

Candidates are required to answer ALL questions.

(Kertas soalan ini mengandungi 3 soalan dalam 6 halaman yang dicetak)

(This question paper consists of 3 questions on 6 printed pages)
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How the crisis in Ukraine is affecting the global economy

By Kammer et al. (2022)

Beyond the suffering and humanitarian crisis from Russia’s invasion of Ukraine, the entire
global economy will feel the effects of slower growth and faster inflation.

Impacts will flow through three main channels. One, higher prices for commodities like food and
energy will push up inflation further, in turn eroding the value of incomes and weighing on
demand. Two, neighboring economies in particular will grapple with disrupted trade, supply
chains, and remittances as well as an historic surge in refugee flows. And three, reduced business
confidence and higher investor uncertainty will weigh on asset prices, tightening financial
conditions and potentially spurring capital outflows from emerging markets.

Russia and Ukraine are major commodities producers, and disruptions have caused global
prices to soar, especially for oil and natural gas. Food costs have jumped, with wheat, for
which Ukraine and Russia make up 30 percent of global exports, reaching a record.

Beyond global spillovers, countries with direct trade, tourism, and financial exposures will
feel additional pressures. Economies reliant on oil imports will see wider fiscal and trade
deficits and more inflation pressure, though some exporters such as those in the Middle East
and Africa may benefit from higher prices.

Steeper price increases for food and fuel may spur a greater risk of unrest in some regions,
from Sub-Saharan Africa and Latin America to the Caucasus and Central Asia, while food
insecurity is likely to further increase in parts of Africa and the Middle East.

Gauging these reverberations is hard, but we already see our growth forecasts as likely to be
revised down next month when we will offer a fuller picture in our World Economic Outlook
and regional assessments.

Longer term, the war may fundamentally alter the global economic and geopolitical order
should energy trade shift, supply chains reconfigure, payment networks fragment, and
countries rethink reserve currency holdings. Increased geopolitical tension further raises risks
of economic fragmentation, especially for trade and technology.

Europe

The toll is already immense in Ukraine. Unprecedented sanctions on Russia will impair
financial intermediation and trade, inevitably causing a deep recession there. The ruble’s
depreciation is fueling inflation, further diminishing living standards for the population.

Energy is the main spillover channel for Europe as Russia is a critical source of natural gas
imports. Wider supply-chain disruptions may also be consequential. These effects will fuel
inflation and slow the recovery from the pandemic. Eastern Europe will see rising financing
costs and a refugee surge. It has absorbed most of the 3 million people who recently fled
Ukraine, United Nations data show.

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European governments also may confront fiscal pressures from additional spending on
energy security and defense budgets.

While foreign exposures to plunging Russian assets are modest by global standards, pressures
on emerging markets may grow should investors seek safer havens. Similarly, most European
banks have modest and manageable direct exposures to Russia.

The Caucasus and Central Asia

Beyond Europe, these neighboring nations will feel greater consequences from Russia’s
recession and the sanctions. Close trade and payment-system links will curb trade,
remittances, investment, and tourism, adversely affecting economic growth, inflation, and
external and fiscal accounts.

While commodity exporters should benefit from higher international prices, they face the risk
of reduced energy exports if sanctions extend to pipelines through Russia.

Middle East and North Africa

Major ripple effects from higher food and energy prices and tighter global financial conditions are
likely. Egypt, for example, imports about 80 percent of its wheat from Russia and Ukraine. And,
as a popular tourist destination for both, it will also see visitor spending shrink.

Policies to contain inflation, such as raising government subsidies, could pressure already weak
fiscal accounts. In addition, worsening external financing conditions may spur capital outflows
and add to growth headwinds for countries with elevated debt levels and large financing needs.

Rising prices may raise social tensions in some countries, such as those with weak social
safety nets, few job opportunities, limited fiscal space, and unpopular governments.

Sub-Saharan Africa

Just as the continent was gradually recovering from the pandemic, this crisis threatens that
progress. Many countries in the region are particularly vulnerable to the war’s effects,
specifically because of higher energy and food prices, reduced tourism, and potential
difficulty accessing international capital markets.

The conflict comes when most countries have minimal policy space to counter the effects of
the shock. This is likely to intensify socio-economic pressures, public debt vulnerability, and
scarring from the pandemic that was already confronting millions of households and
businesses.

Record wheat prices are particularly concerning for a region that imports around 85 percent
of its supplies, one-third of which comes from Russia or Ukraine.

Western Hemisphere

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Food and energy prices are the main channel for spillovers, which will be substantial in some
cases. High commodity prices are likely to significantly quicken inflation for Latin America
and the Caribbean, which already faces an 8 percent average annual rate across five of the
largest economies: Brazil, Mexico, Chile, Colombia, and Peru. Central banks may have to
further defend inflation-fighting credibility.

Growth effects of costly commodities vary. Higher oil prices hurt Central American and
Caribbean importers, while exporters of oil, copper, iron ore, corn, wheat, and metals can
charge more for their products and mitigate the impact on growth.

Financial conditions remain relatively favorable, but intensifying conflict may cause global
financial distress that, with tighter domestic monetary policy, will weigh on growth.

The United States has few ties to Ukraine and Russia, diluting direct effects, but inflation was
already at a four-decade high before the war boosted commodity prices. That means prices
may keep rising as the Federal Reserve starts raising interest rates.

Asia and the Pacific

Spillovers from Russia are likely limited given the lack of close economic ties, but slower
growth in Europe and the global economy will take a heavy toll on major exporters.

The biggest effects on current accounts will be in the petroleum importers of ASEAN
economies, India, and frontier economies including some Pacific Islands. This could be
amplified by declining tourism for nations reliant on Russian visits.

For China, immediate effects should be smaller because fiscal stimulus will support this
year’s 5.5 percent growth goal and Russia buys a relatively small amount of its exports. Still,
commodity prices and weakening demand in big export markets add to challenges.

Spillovers are similar for Japan and Korea, where new oil subsidies may ease impacts. Higher
energy prices will raise India’s inflation, already at the top of the central bank’s target range.

Asia’s food-price pressures should be eased by local production and more reliance on rice
than wheat. Costly food and energy imports will boost consumer prices, though subsidies and
price caps for fuel, food and fertilizer may ease the immediate impact—but with fiscal costs.

Global Shocks

The consequences of Russia’s war on Ukraine have already shaken not just those nations but
also the region and the world, and point to the importance of a global safety net and regional
arrangements in place to buffer economies.

“We live in a more shock-prone world,” IMF Managing Director Kristalina Georgieva
recently told reporters at a briefing in Washington. “And we need the strength of the
collective to deal with shocks to come.”

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While some effects may not fully come into focus for many years, there are already clear
signs that the war and resulting jump in costs for essential commodities will make it harder
for policymakers in some countries to strike the delicate balance between containing inflation
and supporting the economic recovery from the pandemic.

Download and modified from the article available at:

https://www.weforum.org/agenda/2022/03/war-ukraine-global-economy-inflation/

1). Ringkasan eksekutif adalah gambaran menyeluruh mengenai laporan penyelidikan

yang mensintesiskan perkara utama bagi para pembaca, menjimatkan masa mereka dan
menyediakan mereka untuk memahami kandungan keseluruhan kajian. Berdasarkan
takrifan yang disebut di atas, dengan tidak lebih daripada 150 patah perkataan, tulis
secara ringkas ringkasan eksekutif untuk makalah di atas.
(20 markah)
An executive summary is a thorough overview of a research report that synthesizes key points

for its readers, saving them time and preparing them to understand the study's overall content.
Based on the definition above, in no more than 150 words, briefly transcribe an executive
summary for the above article (20 marks)
2). Seperti yang ditonjolkan dalam artikel " Di sebalik penderitaan dan krisis kemanusiaan

daripada pencerobohan Rusia ke atas Ukraine, seluruh ekonomi global akan merasakan
kesan pertumbuhan yang lebih perlahan dan inflasi yang lebih pantas."

As highlighted in the article“Beyond the suffering and humanitarian crisis from

Russia’s invasion of Ukraine, the entire global economy will feel the effects of slower
growth and faster inflation.”

a. Jelaskan EMPAT (4) kesan kemungkinan konflik tersebut kepada negara

membangun seperti Malaysia. (30 markah)

Illustrate FOUR (4) possible impacts of the said conflicts on a developing country
like Malaysia. (30 marks)

b. Berdasarkan maklumat yang diberikan dalam artikel tersebut, apakah EMPAT (4)
polisi terbaik yang boleh anda cadangkan kepada penggubal polisi untuk
mengurangkan kesan krisis daripada pencerobohan Rusia ke atas Ukraine terhadap
Malaysia? (30 markah)

Based on the information provided in the article, what could be the best FOUR (4)
policies that you could propose to the policymakers to mitigate the impact of the crisis
from Russia’s invasion of Ukraine on Malaysia?
(30 marks)

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3). Sudah ada tanda jelas bahawa perang dan kesan lonjakan dalam kos untuk komoditi

penting akan menyukarkan penggubal dasar di sesetengah negara untuk mencapai

keseimbangan yang berhalus antara menahan inflasi dan menyokong pemulihan
ekonomi daripada wabak
There are already clear signs that the war and resulting jump in costs for essential

commodities will make it harder for policymakers in some countries to strike the
delicate balance between containing inflation and supporting the economic recovery
from the pandemic.
Terangkan EMPAT (4) sebab kenapa konflik menyukarkan sesetengah negara untuk

mencapai keseimbangan antara menahan inflasi dan pemulihan ekonomi daripada

wabak? (20 markah)

Explain FOUR (4) reasons why the conflicts make it harder for some countries to strike a
balance between containing inflation and economic recovery from the pandemic?
(20 marks)

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