According to McConnell and Brue (2009), Gross Domestic Product can be defined as the market value of all final goods and services make within nations during one year.GDP can be divided into nominal GDP and real GDP. Nominal Gross Domestic Product is measured by using current price while Real Gross Domestic Product calculated by the base year price. Nominal GDP will have problem that is the GDP will rise year to year but output did not increase. Real GDP solve the problem of nominal GDP by correcting the prices. From Real GDP, it compares real number of year to year which can know clearly and realty changes in output.
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GDP can be measured by two basic ways that are expenditure approach and income approach. According the theory,the expenditure approach measure by total up all cost that used on final goods and services. Those spending include Personal consumption expenditure (C) , Gross Private Domestic Investment (Ig), Government purchases( G) and net export ( Xn) (McConnell, Brue and Flynn, 2009). C is consumption by individual or household’s expesenses includes goods (durable or non-durable) and services. Ig refers the spending on all capital goods. G is spending on public goods and services by government while Xn is cost that used in buy the products and service make within nation. But in Malaysia, expenditure approach consists of private expenditure, public expenditure and import and exports of goods and services. The private and public expenditure can further divide to investment and consumption (Economic Planning Unit, 2010).
Another method to measure GDP is income approach. It totaling up all income includes compensation of employee, rents, interest, proprietor’s income, corporate profits and taxation on production and imports (McConnell, Brue and Flynn, 2009). Compensation of employee is wages or salary of labor service. Rents are income from property or other rental inputs. Interest is the household receive from loan. Proprietor’s income is income from incorporated business .Corporate profits is profit of corporation(McConnell, Brue and Flynn, 2009).
Besides that, GDP also a indicator of a country’s economy growth whether in good or bad condition (Investopedia,n.d.). GDP can has large influence toward economic. Economic growth can be defined as either an increase in real Gross Domestic Product (GDP) or an increase in real Gross Domestic Product (GDP) per capita (McConnell, Brue and Flynn, 2009). It is calculated as a percentage rate of growth per year. Generally, the formula below was used to measure the economic growth in a country(McConnell, Brue and Flynn, 2009):
Real GDP current – Real GDP previous X 100
RGDP previous
Malaysia economic growth has rapidly sturdy in the early 1990s. Average of GDP is about 7 to 9 % in early years. The growth of this few years maintain between 5 to 6 % until Malaysia suffer in Asian Financial Crisis 1997 and Subprime Mortgage Crisis. (Dunhill,n.d.).Malaysia main economic is exported goods and services to other countries mainly United States. But recently, Malaysia changes their economic model from export oriented to service oriented economy and to more high income country. The country has a stable economic growth will also has a significant good GDP growth.
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The Malaysia economy has much related to United States economy. When United States faced the housing bubbles in year 2008 and burst the price of housing market (Dunhill, n.d.).United States faced recession on housing market. Recession is when a GDP growth of a country continuous decline at least 3 quarters. Malaysia has some significant influence from that also (Dunhill, n.d.). Malaysia faced deeply recession during year 1997 till 1998 on Asia Financial Crisis. Malaysia’s GDP influence much by shrink more 7 %. The recession continue happen in Malaysia in year 2001 and year 2009.The recession occurred when a country’s GDP continue In year 2009, Malaysia government predicted GDP decline 3% and economists believe that it will recover in year 2010 (Travel Document Systems, n.d.).
U.S. Subprime Mortgage Crisis occurred in year 2008 and lead to one of factor cause recession in year 2009. Subprime Mortgage is interest only loan offering, easy be afford by many and does not need to pay principal with first few month. The borrower believe themselves that can get refinance before paying the principal but mortgage borrower cannot afford to pay the monthly payment which keep increasing, they forces to default with high payment and Subprime Mortgage Crisis is occurred(Amadeo, 2010).
U.S. Subprime Mortgage Crisis has little impact to Malaysia baking’s sector. Our impact not much as impact happens in U.S for other sectors, some influence and loss a lot such as manufacturing sector. It is no economic factor rather than globalization factor which cost competition with those lost cost based country (Dunhill, n.d.).
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