The relevance of portfolio theory and the capital asset pricing model Essay

The relevance of portfolio theory and the capital asset pricing model to an investor or fund manager in the equity markets - Essay Example rd from the portfolio theory and further evaluates the risks that an investor will be bearing upon buying a portfolio; under the assumption that this is risk that the investor will have to bear no matter what he does. Fund managers and investors need to then decide whether or not an investment is worth making based on this information. Although the two help bring to light the various aspects of market risk, they are still not a 100 percent reliable which will be further discussed. The portfolio theory revolves around the selection of the best investment strategies in terms of risk; i.e. it focuses on the risk surrounding the equity market and the return or gains from any transactions. In essence an investor or fund manager would need to look at the portfolio theory to make a clear contrast between what is risk and what is simply uncertainty. The fact is that any discussion of an equity market will need some insight on the aspects of the risk associated with any venture or portfolio. This is imperative due to the nature of the equity business which is primarily based on risk itself, and also has a hand in defining the way market values of investments are given foundation (Brentani 2004). It is the idea of risk versus return which is mainly what attracts an investor or fund manager to a portfolio. Theoretically speaking one would want to create such a portfolio which offered an insight into the best risk-return opportunities against the given set of risk constrictions. This would enable the investor to increase the chances of maximizing his returns. An efficient portfolio will not only help him do this but also attain a higher return as opposed to a lower one. Practically speaking, using the portfolio theory is important because the outcome of risk and return is unknown. It is because of risk that there is more than one possibility for an investor or fund manager; this includes returns that are on the mark, higher and even lower than previously expected. Without

Major and Career Research Paper Annotated Bibliography

Major and Career Research Paper - Annotated Bibliography Example The researchers noted that shortage in logistics contributed to the major challenges affecting the supply chain management process. The financial challenges contributed to the increase in demand and supply of goods and services. These shortages are operational and affect planning and controlling of supply chains. Finally, Andreas and Robert noted that the cost of logistics remains a major influence in the management of supply chains. Gadde, Hakansson and Persson focused on the supply chain companies. Their book provided a summary of twenty-five businesses in the area of selling goods and services. The book mainly focused on current issues connected to the supplier of goods and services so as to produce effective supply chain networks. The report is separated into three sections, and it started by exploring the challenges that affect the supply chain management. The second section of the book explored the different supply chain networks from the sellers’ interactional perception. The part looked at the selling activity and the structures of supply chain. The third part presented the boundaries in terms of the relationship between the supply networks, and how they can be designed. Finally, the book presented the efficiency of supply chains and how they can form a proper unit of analysis for example, several transactions, single transaction with one give supplier or different suppliers at a given system leve l. These researchers completed their project in four stages whereby they conducted a literature review, interviews, survey, and conducted an analysis of the findings as well as a report. Findings indicated that with the increase in new technologies, different supply companies are currently identifying the need of investment in modern technology. They recommended that organization should adopt strategies that can adjust quickly with the increase in technological development. Organizations should also allow suppliers to make their own decisions

Midterm1 Assignment Example | Topics and Well Written Essays - 750 words

Midterm1 - Assignment Example These abiotic factors are broadly classified  into three categories climatic factors, edaphic factors and inorganic substances. Climatic factors include the climate regime and physical factors of the environment such as humidity, atmospheric temperature, wind and light among others. Edaphic factors are related to the structure and composition of soil including its chemical and physical properties such as soil profile, soil type, minerals, soil water, soil organisms and organic matter. The last category of inorganic and organic substances include; water, sulphur, phosphorous, proteins, carbohydrates, lipids and human substances. Biotic factors comprise of the living part of the ecosystem. They include any living thing that affects another organism (eoearth.org). Biotic community is divided into heterotrophs, authotrophs and saprotrophs. Autotrophs also known as producers or convertors are photosynthetic plant, generally bearing chlorophyll, which produces high-energy complex organic compounds form inorganic raw materials. In terrestrial ecosystem, autotrophs are mainly rooted plants. Floating plants e.g. phytoplankton and shallow water rooted plants are the autotrophs in aquatic ecosystem. Heterotrophs are known as consumers, which are generally animals feeding on other organisms. They consist of mainly carnivores and herbivores. Lastly, saprotrophs break down complex organic compounds of dead matter. ... These roles are because of natural processes of a total ecological sub-system of that it is a part. In turn, this natural processes result to complex interactions among abiotic and biotic components of ecosystems through the general driving forces of energy and matter (Fisher al et, 648). Ecosystem has four basic functions; regulatory functions, habitat functions, production functions and information functions. Regulatory group of functions relates to the capacity of both natural and semi-natural ecosystems to regulate essential ecological processes by bio-geochemical cycles and other biosphere processes. Natural ecosystems provide habitat functions. Wild plants and animals take refuge in the natural ecosystem. Consequently, this contributes to conservation of genetic and biological diversity in the evolutional process. It also regulates change and stability of a region. Another function is the production function. Photosynthesis and nutrient uptake by autotrophs converts carbon diox ide, energy, nutrients and water into a wide variety of carbohydrate structure, which are later used by secondary producers to make an even bigger variety of living biomass. This diversity in structure of carbohydrate provides many ecosystems with goods for human consumption. Lastly natural ecosystem provide an essential ‘reference function’ and lead to maintenance of human health by providing opportunities for spiritual enrichment, reflection, aesthetic and recreation experience. The Diablo Range is a mountain range, located in the eastern San Franciso Bay area south to the Salinas Valley area of northern California. It is perceived as an intact ecosystem has it has both biotic and abiotic

Quality 2 Essay Example | Topics and Well Written Essays - 2750 words

Quality 2 - Essay Example Earlier most goods and services were produces by the same person to meet quality. Production of a lot of brought many people to work at various production states to ensure quality products. In late 1800s businessmen like Fredrick Taylor and Henry Ford identified major limitation that affected mass production. Taylor instituted quality department that dealt with correcting errors and ensuring quality production whereas Ford traced on standardization quality to ensure all organization produced products fit for human consumption Arnaboldi, M., Azzone, G., Savoldelli, A. (2004). Execution of quality in organization was the duty of quality departments. This mainly did inspection to ensure products were defect free. In the second half of 20th centaury, quality was emerged as a profession and a managerial tool. Over the year's quality developed from simple control to engineering then to system engineering. Later in 1990s quality system emerged these are the quality management system and the total quality management Bryman, A., Stephens, M., Campo, C. (1996). Quality is a depiction of the culture, attitude and ethics of an organization that aims at providing quality services and goods to its customers to satisfy them. The cultural part calls for adoption of quality system aspect in all the operations of an organization, Bryman, A., Stephens, M., Campo, C. (1996). A quality management system (QMS) These are set of rules or policies necessary for planning production of services and products in the business. QMS incorporates various forms of internal processes within the business environment and offers a implementation approach.QMS enables the organization to identify measures, controls an improve the various processes with a business that contributes to prosperity of the organization. In short QMS assists organizations to identify defects and prevent them from happening (Hill Stephen, 1991) Quality management system helps the organization to; accomplish high reliability in the operations they are engaged in including providing quality products or services Decrease high costs of operations. increase competence and sufficient by humanizing the use of time and the available resources identifies and improves customer satisfaction Market the organization to the rest of the world. Discover other areas that they can engage in control growth more efficiently by making it easier to incorporate new employees frequently improve the products, processes and systems Total management quality (TQM) This is the process that ensures the totality of quality management in all departments within an organization. It entails planning, leading, managing and controlling. It called so because it ensures high output and meets the satisfaction of stakeholders including clients, suppliers and even employees, Bryman, A., Stephens, M., Campo, C. (1996). In general TQM aims at; Helping the management to make well informed decision that will help in the overall prosperity of the organization. Help the organization as a whole to meet the needs and desire of the customer by carrying out market research before it embarks on production. Ensuring that there is bottom top problem solving abilities. Participation of all the stakeholders of the organization in the operations to ensure everyone is at per with the organizations performance. Ensures on

Favourite Hoiliday Essay Example for Free

Favourite Hoiliday Essay The word Diwali is an incorrect form of the word Dipawali, which means Rows Of Light. People will celebrate this festival during Karthik (October- November). All Indians will celebrate this festival but different religious people have various opinions about it. The Hindhus celebrates this festival as a gesture of their joy because when Sri Ramachandra return to Ayodhya after 14 years exile in the forest following his victory over evil demon Ravana in a war and signifies the victory of good over evil. This is a day for which every child waits through out the year. Though it’s a festival for all people it is very interesting to young people because they savor most on this day. On this occasion everyone will like to wear traditional dresses. On this day my house is completely decorated with flowers ,candle lights and elecronic bulbs so it looks like a heaven twinkling with sparkling lights. I initiate shopping around 1 month before the festival, because it is not only a festival for us it’s a day where all of our cousins compete to look pretty, so it resembles the fashion show. Everyone will peer like angels dropped from heaven, I think two eyes are not enough see the beauty of them. On this ceremony my mother will prepare delicious food, the menu itself is really mouth watering. My favourite dessert is double ka meeta it’s very rich and delicious. The ingrediants added in this are bread, milk, sugar, butter, almonds and cashews. One of the only thing I miss about Hyderabad apart from people is food especially this dessert nothing beats this taste. when I eat this dessert it definitely comes into my dream because its taste is that superb. The thing that which sounds very interesting and elite part of this festival is bursting of crackers. There are plenty kind of crackers, but I like rocket and Vishnu-bar most. I am really excited while bursting rocket because it directly goes upwards with vivid colors and zooyi sound. It’s really a beautiful scene when all the crackers bursted and emits bright colours with variety sounds. In the night time the whole city looks like a stars in the sky. All in all, I go to bed with all these memorable moments in my mind. It brings a wonderful feeling into the heart and souls of every man, woman and  child. Everyone must celebrate the festival and savor the fresh feeling in it. New clothes, dishes, sweets, fun and crackers all these are part of this festival.

Dementia Care Training for Nurses

Dementia Care Training for Nurses Improving Dementia Care Training for Registered General Nurses and Adult Student Nurses: examining the need, efficacy, content and barriers. This Independent Project aims to explore the efficacy of current provision for Dementia care training for Adult branch Student Nurses and Registered General Nurses (RGN’s). A range of audits and research literature on this area of special interest will be examined to obtain a better picture of the situation with an aim to discover a recommendation for whether more training in this area is needed. The content and provision needs of training will also be explored with barriers to effective care and training critically analysed. Introduction Dementia is an umbrella term used to describe a wide range of symptoms caused by certain diseases or conditions associated with decline in a person’s cognitive abilities such as memory, personality changes, impaired reasoning and use of verbal language, which are severe enough to reduce a person’s ability to perform every-day activities (Chater and Hughes 2012). The most common of these diseases is Alzheimer’s reference. Dementia is progressive and incurable, therefore it is vital these people are supported and cared for by nurses who have been trained with the skills and knowledge needed to deliver high quality evidence based care. ADD IN STRONG REFERENCE THAT TRAINING IMPROVES QUALITY EVIDENCE-BASED CARE. There are currently 800,000 people with dementia living in the UK, with these figures expected to rise by 40% over the next 12 years and by 156% over the next 38 years due to an ageing population. Evidence from the Department of Health (2012) shows that 95% of these people are over the age of 65 and are therefore more likely to have complex medical needs. As a result; they spend increased time in acute hospital wards under the care of RGN’s, making training in this area for this group of health professionals a contemporary issue which needs exploration (Department of Health 2012) . The rising number of patients with dementia presents a challenge for all acute hospital trusts and many different health professionals. Such patients experience higher mortality rates and are more likely to have longer lengths of stay than others, they are also more at risk of falls and other incidents whilst in hospital (Cornwell et al 2012). Aside from the cost implications to the NHS when trusts do not get to grips with this challenge, the patients are not getting appropriate care – they are not ‘living well with dementia’ (Department of Health 2009). The National Dementia Strategy set a clear vision that people with dementia and their carers should be helped to live well with dementia, no matter what the stage of their condition or where they are in the health and care system. Through examination of Dementia training efficacy, it is hoped a recommendation will be made to improve the lives of those living with Dementia through changes in Dementia Care training for RGN’s. Following initial exploration of evidence available surrounding Dementia care training, the following issues will be addressed and critically analysed: Why is Dementia Training for RGN’s needed? How can the efficacy of training on Dementia care for RGN’s be improved? What content should be used in Dementia care training? What are the barriers to implementation of Dementia care training? Why is Dementia Training for RGN’s needed? Patients admitted to acute hospital wards with dementia have comparatively poorer outcomes regarding length of stay, mortality and further institutionalism (DH 2009, Alzheimer’s Society 2012). In addition, this group of patients place higher demands for nursing care, are more likely to functionally decline during admission and suffer increased rates of delayed discharge. This can result in permanent decline in health and added costs to NHS trusts (Mukadam and Sampson 2011). Though thought by many to be due to their complex health needs (REFERENCE), The Health Foundation (2011) has suggested a significant reason for these poorer outcomes is lack of professional understanding by RGN’s in providing appropriate care. Improvement in Dementia care is currently a nationwide health initiative reference. National audits over the last 5 years have recommended implementation of dementia services such as dementia lead nurses, standardised assessment and care protocols and compulsory staff training (DH 2009, Harwood et al. 2010, Thompson and Heath 2013, RCP 2013). Yet there are many recent reports of poor and sometimes negligent care suggesting these recommendations have not yet been followed or implemented (Leung and Todd 2010, Francis 2013, RCP 2013). Results from the National Audit of Dementia Care in general hospitals indicated that nurses working on acute wards rated significantly lower adequacy of training than nurses working on care of elderly wards. Other audits such as Counting the Cost report (Alzheimer’s Society 2009) indicated that more than half of nurses had not received any pre or post registered dementia training. Elliot and Adams (2011) further identify the lack of understanding around Dementia, meaning the needs of older people with Dementia are not addressed in many acute hospital settings. As can be seen, the need for specific training in Dementia care for RGN’s is strong. There is evidence to support positive influence on effective care with training. The National Audit of Dementia Care in General Hospitals (NAD 2012) was commissioned by Healthcare Quality Improvement Partnership to address the concerns of care for people with dementia (Tadd et al. 2011). These audits aimed to identify hospital’s provision of assessment, care models and staff training. Following the 1st round of audits in 2011 a report by Thompson and Heath concluded that the main barriers to providing good care were lack of understanding of the condition, not enough time to care and failing to communicate with patients. Improvements are not as forthcoming in dementia assessment on admission to acute wards. Results from the 2nd round audit of NAD acknowledge that there had been improvement in implementation of staff training frameworks in hospitals since the 1st round audit and represented an improvement in care as a result (Royal College of Psychiatrists 2013). The 2nd round report highlighted that approximately 75% of hospitals now provide dementia awareness training to nurses, although almost 50% are still failing to provide dementia awareness training as part of induction programmes. The report suggests that further improvement is required in providing better and more consistent staff training, as despite some progress, there appears to be a gap between actual training and written reports (RCP 2013). As a result, the recommendations outlined and analysed in this Independent project may be of some use in raising positive statistics. How can the efficacy of training on Dementia care for RGN’s be improved? It is the evaluation of this evidence which aims to generate key recommendations for provision of Dementia care training. Elliot and Adams (2011) were able to show improvements in needs met where specific education for RGN’s is provided by a Dementia Nurse Specialist (recommendation number 1). This shows the role of the Dementia Nurse Specialist to be vital in improving the efficacy of Dementia training and infiltrating best possible evidence-based care into clinical practice. However, despite this, the minimal numbers of Dementia Nurse Specialists currently practicing has to be identified as a limiting factor. In many trusts and academic institutions, there is no availability for a Dementia Nurse Specialist to provide training, therefore limiting efficacy even when extensive training is to be provided (Knifton et al. 2014). In terms of training content, it is well documented that evidence used should be reliable and credibly underpin clinical practice as this promotes evidence –based practice and better health outcomes (Jeffs et al. 2013). Evidence based practice is vital in all nurses’ roles (REFERENCE NMC CODE). REFERENCE suggests up to date qualitative and quantitative research is the only knowledge and information base which should be used to allow best care to be provided, hence placing important value of increased use of evidence based research in training sessions. Currently, Moyle et al. (2008) suggests the lack of research used to underpin Dementia training for RGN’s is limiting ability to not only provide best care but also identify those living with Dementia (Chang et al. 2009) RECOMMENDATION 2. However, barriers to evidence based care remain even when high quality evidence is used to support training. Smith-Strom and Nortvedt (2008) have identified that RGN’s ofte n find evidence difficult to interpret and evaluate while Oermann (2009) suggests very little of the content is retained to be implemented into practice. This suggests RGN’s may also need training on evidence based practice and processing research (REFERENCE). Gerrish (2008) suggested the knowledge and skill of the individual nurse prior to receiving specific training heavily influenced their ability to improve their practice following. This suggests multiple training sessions on Dementia may be needed before practice can be changed and improved (REFERENCE). RECOMMENDATION 3. What content should be used in Dementia care training? Tadd et al. (2011) explain that one reason for increased functional decline is that care of patients on acute wards is prioritised from the perspective of the medical condition for which they have been admitted, often overlooking their mental health condition. Most acute wards follow rigid, task driven routines such as drug rounds, meal times and washing, while staff lack the necessary skills required to provide proficient dignified care. This form of nursing can cause increased anxiety and delirium resulting in poorer outcomes for individuals (Tadd et al. 2011, Calnan et al. 2013). Alzheimer’s Society (2009) report that patients admitted to acute hospital wards for longer periods are more likely to suffer from permanent worsened effects of dementia and physical health. They are more likely to receive prescribed antipsychotic drugs and to be discharged to residential care rather than their home (Thompson and Heath 2013). Leung and Todd (2010) acknowledge that specialist services do exist in some trusts and that training in managing behaviour, using life stories and implementing dementia care mapping are all good techniques that can help nurses to improve quality care. Dementia care mapping is an observational method of recording interactions that take place between individuals and nurses over a period of time (Ervin and Koschel 2012). This enables evaluation of what works and doesn’t work for patients, it is a useful way of tailoring person-centred care to help staff understand the experience of dementia from the patient’s perspective while rating quality of care given (National Institute for Health and Clinical Excellence and Social Institute for Care Excellence 2007) (NICE-SCIE). Alzheimer’s Society (2013) suggest that nurses must challenge their task driven ward environment and provide a more flexible approach providing care from the patient’s perspective as this is achievable and beneficial to patients. Leung and Todd (2010) reported that most nurses have received little or no training and are ill equipped to deal with the many challenges that face both patients and nurses. Additionally NICE (2013) state that nurses suggest dementia education programmes should include identifying signs and symptoms, communication and person-centred care methods, treatment to include medicine administration and how to monitor side effects, particular emphasis was placed on requirement to assess pan. Nurses also suggested that learning about the impact of dementia on the individual and managing challenging behaviour would be useful. Dementia training is not a compulsory element of the pre-registered nursing curriculum although this has been recommended to the Nu rsing and Midwifery Council (NMC) by several national organisations. (NICE-SCIE 2007, Alzheimer’s Association 2009, All-party Parliamentary Group on Dementia 2012, Higher Education for Dementia Network 2014 (HEDN)). The NHS Confederation (2010) recognise that providing dementia training to staff could benefit hospital trusts in several ways. These include nurses being equipped to identify those with dementia, therefore being able to implement care pathways appropriate to patients. Effective management of patients with dementia helps avoid disorientation and anxiousness which could reduce the amount of time spent attending to challenging behaviour and allow staff more time to care for all patients on an acute ward. What are the barriers to implementation of Dementia care training? Even when effective dementia training has been provided, barriers to good quality evidence-based care remain and it is important these do not go unnoticed. Identification and knowledge of these barriers alone can minimise their limiting factor (reference). Acute hospital settings pose many challenges to both patients with dementia and the nurses caring for them. Yet Harwood et al. (2011) report that there is little evidence of research aimed at investigating these challenges and the provision of detailed policies on how to deal with them. Patients with dementia are more likely to find an unfamiliar environment unsettling, frightening and confusing due to the nature of impaired cognitive ability (Moyle et al. 2008). This accounts for literature suggesting that an acute ward environment comprised of identical doorways and bed spaces causes added confusion to patients (Reference). This often creates increased disorientation, aggression or withdrawal (Leung and Todd, Thompson and Heath 2 013). This further challenges the nurse’s role in maintaining nutritional, personal hygiene and drug administration tasks as individuals can no longer respond to familiar faces, environment and daily routines (Tadd et al. 2011). Barriers Overcoming the barriers The government accepts improvements are needed and is pinning hopes on the  £3.8 billion Better Care Fund, which will was launched in April 2015. The pot has been earmarked for joint projects between the NHS and local government to encourage more integrated care. STUDENT NURSES 2015 report: Dementia education to bestandardised at degree level some nursing degrees offer only three hours of dementia education throughout the whole three-year course. How this should change following the dementia core skills framework, but it doesn’t state how many hours students will be required to undertake. Student nurse attitudes towards working with the elderly Future plans for RGN’s HEE 2013 Mandate targets. – ensure that tools and training opportunities in dementia are available to all staff by the end of 2018. Current training requierments of RGN’s in relation to Dementia training References Department of Health (2009) Living well with dementia: a national dementia strategy. The Stationery Office, London. National Institute for Health and Clinical Excellence/Social Care Institute for Excellence guideline (2006) Dementia: supporting people with dementia and their carers in health and social care. NICE/SCIE, London.

Relationship between Inflation Rates and Employment

Relationship between Inflation Rates and Employment CHAPTER 1 Gross Domestic Product as an indicator of wealth and therefore quality of life has long been criticized (Mederly, P. and et al. 2003). Gross Domestic Product (GDP) is the value of total production of goods and services in a country over a specified period, typically a year. The gross domestic product (GDP) or gross domestic income (GDI) is a measure of a countrys overall economic output GDP can be determined in three ways, all of which should in principle give the same result. The most direct of the three is the product approach, which sums the outputs of every class of enterprise to arrive at the total. The expenditure approach works on the principle that all of the product must be bought by somebody, therefore the value of the total product must be equal to peoples total expenditures in buying things. The income approach works on the principle that the incomes of the productive factor must be equal to the value of their product, and determines GDP by finding the sum of all producer s incomes (Bureau of Economic Analysis, U.S Department of Commerce, 2007). The most common approach to measure GDP is the expenditure method: GDP= private consumption + gross investment + government spending + (exports à ¢Ã‹â€ imports) GDP = C + I + G + (X-M) (Equation 1.1) An event in 1975 that remind us the current GDP in our country where the Malaysian economy slumped into its great recession, with a GDP growth rate of only 0.8 percent, compared to 8.3 percent in 1974. This is one of the effects of increase in oil prices and then substantial price increase in 1973 were bought about mainly shortage of food and raw materials arising from bad weather and increased aggregate demand (Cheng, M.Y. and Tan,.H.B. 2002). According to the above circumstances occurred in 1975, the researcher has choosing one of variables that may relate with fluctuation of GDP which is inflation rate. Inflation means either an increase in the money supply or an increase in price levels. Generally, when we hear about inflation, we are hearing about a rise in prices compared to some benchmark. The study of the effects of inflation on economic growth continues to be an important and complex topic in economics. If inflation has real economic effects, then governments can influence economic performance through monetary policy (Risso, W.A and Carrera, E.J.S, 2009). Therefore, investigating how inflation affects economic growth pertains directly to the optimal design of monetary policy. Results from such studies are particularly important for economies. Besides the inflation, the researcher has considered total employment as one of the variable in the model since economic growth and employment are correlated between each others. The relationship between unemployment and GDP is called Okuns law. It is the association of a higher national economic output with the decrease in national unemployment. This is because in order to increase the economic output of a country, people will need to go back to work, thus lowering unemployment. In order to support the relationship exist between GDP and employment, the researcher has found out the issue supporting the theory that GDP and employment has a positive relationship between each others. According to Hassan, M.K.H. and et al. (2010), in the period of 1996 -1997, the manufacturing sector experienced a rapid growth producing the employment rate in the sector to grow at 7.7 percent per annum but later declining to negative 3.6 percent in 1998 due to the economic recession. In addition, in year 2000, the Malaysian manufacturing sector contributed 33.4% to gross domestic product (GDP), 85.2% to total export and 27.6% to total employment. 1.2 PROBLEM STATEMENT Inflation is a major source of economic instability because it weakens incentives for work and production, distorts the allocate efficiency of the market mechanism, erodes international competitiveness of the domestic industry, and reduces growth potential. According to study by Fischer and Modigliani (1980) suggested a negative and nonlinear relationship between the rate of inflation and economic growth through the new growth theory mechanism. Furthermore, inflation also damages economic growth by lowering domestic and foreign savings, reducing efficiency of resource allocation, and deteriorating the balance-of payments (Risso, W.A. and Carrera, E.J.S., 2009). According to Cheng, M.Y. and Tan, H.B. (2002), the economy has experienced episode of high (1973-1974, 1980-1981) and low (1985-1987) regimes of inflation, and was able to contain low and stable inflation during the high economy growth period of 1988-1996. The second problem statement that should be concerns since the employment can affect the economic growth and it is important variable to determine the quality of production for national output and next will influence the GDP of our country. For example, in the early 1990s, the unemployment rate increased for about a year following the end of the previous recession. Coming out of a recession, companies are thought to be reluctant to hire many more workers until they are convinced about the sustainability of a new economic recovery while people who had left the labor force during the recession return to seek to find jobs (Seyfried, W.). Therefore, the researcher conducts this research in order to examine the correlation exists between inflation rate and employment with GDP so that we can help the country to mitigate the problem occurs by supporting the governments policies to increase the countrys GDP. In addition, this research also useful since the results of the studies can be used in policys decision for resource allocation in order to accelerate economic growth. 1.3 OBJECTIVES The objectives of the study are to: 1.3.1 Analyze the relationship between Inflation Rate and Gross Domestic Product in terms of magnitude and direction. 1.3.2 Analyze the relationship between Total Employment and Gross Domestic Product in terms of magnitude and direction. 1.4 SIGNIFICANCE OF THE STUDY The significances of this study are as follow: 1.4.1 Researcher This study will help the researcher to complete their course requirement and will be as guidelines for their field of work in the future. The researcher can gain many experiences in order to complete this research. There are lot of weaknesses may be obtained and this will encourage the researcher to provide the better research in the future. Future researcher will know and more understanding about gross domestic product when conduct this research. It will give the knowledge to the researcher to identify the correlation exist between inflation rate and employment and it always make the researcher briefing to know deeply and applied the study. 1.4.2 Organization This study might help the organization in analyzing the countrys economic condition in order to prevent and reduce the risk during the inflation and know the effects of the crisis occurs to them. This study also may give some guidance to them to protect their company and industry itself. 1.4.3 Public This study can inform and gives some knowledge to the public the relationship between economic growth, inflation rate and employment. They also can make preparation to face the increasing in inflation rate and able to survive in that situation. 1.5 SCOPE OF THE STUDY The researcher chooses to conduct the research about GDP in Malaysia from 2000 until 2010 In this study, the researcher wants to determine the correlation exist between inflation rate and employment with GDP in Malaysia. It is important because as economic planners and forecasters used the GDP per capita in monitoring economic growth trend for time series. The collection of data of GDP, inflation rate and total employment were collected from Department Of Statistics Malaysia in quarterly basis. 1.6 THEORETICAL FRAMEWORK Figure 1.1: Theoretical Framework INFLATION RATE GROSS DOMESTIC PRODUCT EMPLOYMENT RATE RATE Independent variables Dependent Variable Figure 1.1 represents the dependent variable and independent variables in this study. The function of theoretical framework has been clarified by Sekaran, U. (2003) which is a conceptual model of how one theorizes or makes logical sense of the relationship among the several factors that have been identified as important to the problem. Figure above clearly discuss the correlation between Gross Domestic Product which is variable primary to the researcher while Inflation Rate and Employment act as independent variable which is influences the dependent variable. 1.7 HYPOTHESIS In classical test of significant, two kind of hypothesis are used. They are Null Hypothesis and Alternate Hypothesis. Hypothesis is a conjectural statement that describes the relationship among variable even negative or positive. Null hypothesis which is represent by H0 symbol to show that the relationship between independent and dependent variable is not exist. However alternate hypothesis is representing by H1 symbol to show that the relationship is existing between both dependent and independent variable. According to Sakaran (2004), a hypothesis defines as a logically conjectured relationship between two or more variables expressed in the form of testable statement. Relationship a conjectured on the basis on the network of associations established in the theoretical framework formulated for the research study. There are two hypotheses that can describes the correlation exists between dependent variable and independent variables. Therefore the hypothesis that can be tested as follows: Inflation and GDP H0: there is no significant relationship between inflation and GDP. H1: there is a significant relationship between inflation and GDP. Employment and GDP H0: there is no significant relationship between employment and GDP. H1: there is a significant relationship between employment and GDP. 1.8 LIMITATION / CONSTRAINTS The limitations / constraints are: 1.8.1 Time constraint The length of time is limited since the researcher does not have much time to make detailed research. The time provided only three months and the researcher need to divide time properly to complete the research because the process of collecting data is quite difficult. 1.8.2 Cost constraint The cost involves is quite high since as a student, the researcher only depend on the loan applied. Examples of cost involve in order completing this research such as cost of printing, cost of maintaining the laptop, cost of surfing the internet and etc. 1.8.3 Data constraint Since the researcher use the secondary data, the collection of data that have been publish are so limited and the related material are not very supporting the topic of research. 1.8.4 Lack of experience The researcher is less of experience in conducting the research therefore needs to refer the researchers advisor to process the data and learning the skill that needed as a good researcher. CHAPTER 2 LITERATURE REVIEW 2.1 DEPENDENT VARIABLE 2.1.1 GROSS DOMESTIC PRODUCT (GDP) Generally, according to Chan, W.W. and Lam, J.C. (2000), gross domestic product is a common measure of the economic well-being of a society. When government officials plan for the future, they consider the various economics sectors contributed to the gross domestic products. In the other study by Ivanov, S. and Webster, C. (2007), they use the growth of real GDP per capita gr as a measure of economic growth in line with other publications in the field (see Ivanov and Webster, 2007; Lopes et al., 2002; Plosser, 1992). The function of GDP also has been explained by Kosmidou, K. (2008) where gross domestic product (GDP) is among the most commonly used macroeconomic indicators, as it is a measure of total economic activity within an economy. The gross domestic product growth (GDPGR), calculated as the annual change of the GDP, is used as a measure of the macroeconomic conditions. The significance between GDP, foreign trade and foreign direct investment has been discussed by Liu Ying and Cui Riming (2008) where the economy is highlighted by the significant performance of both its economic growth and its foreign trade and foreign direct investment. Under this background, the correlation of foreign trade, foreign direct investments and economic growth in has become an important issue for academic research. Previous studies support that foreign trade and foreign direct investment have positive impacts on gross domestic product (GDP). In the study by Malul, M. and et al. (2008), the GDPpc is used mainly to compare the standard of living in different countries. It means that the higher of cost of living in a country, the higher earning of gross domestic product of the country. According to Wong, K.Y.(2008),economic growth of an economy refers to the expansion of its production possibility set, as a result of accumulation of primary factors such as labor and capital (physical and human), or improvement of production technologies. However, because the production possibility frontier (PPF) of an economy is not observable, economic growth is usually measured in terms of the growth rate of some observable variables such as real GDP or real per capita GDP. Besides that GDP also one of the result of the countrys economic activities based on the statement of Daly and Cobb (1989), GDP expresses the content of physical flows of à ¢Ã¢â€š ¬Ã…“capital, industrial production, services, resources and agricultural productà ¢Ã¢â€š ¬?. The scientific research has been conducted by Ligon and Sadoulet (2007) using a sample of 42 countries show that GDP growth, which comes from agriculture is at least twice as effective in reducing poverty compared to GDP growth coming from nonagricultural areas. In order to know the correlation between inflation and growth, Gokal, V. and Hanif, S. (2004), stated that the tests revealed that a weak negative correlation exists between inflation and growth, while the change in output gap bears significant bearing. The causality between the two variables ran one-way from GDP growth to inflation. While, according to some consensus exists, suggesting that macroeconomic stability, specifically defined as low inflation, is positively related to economic growth. 2.2 INDEPENDENT VARIABLES 2.2.1 INFLATION RATE (INF) Inflation on economic growth continues to be an important and complex topic in economics. If inflation has real economic effects, then governments can influence economic performance through monetary policy. Therefore, investigating how inflation affects economic growth pertains directly to the optimal design of monetary policy. According to Andres and Hernando (1999), for example, reducing inflation by one percentage point when the rate is 20 percent which results in an increase in the growth rate of 0.5 percent, compared to reducing inflation by one percentage point when the inflation rate is around 5 percent, which results in a decrease in the growth rate by 1 percent. Furthermore, a study by Mallik and Chowdhury (2001), the structuralisms argue that inflation is necessary for economic growth, whereas the monetarists argue the opposite, that is, inflation is detrimental to economic growth such debate started in the 1950s, focused on developing countries, which had long suffered fro m low-growth rates with high rates of inflation and larger deficits in the balance of payments. In order of inflation, the monetarists argue that price stability promotes economic growth and protects the balance of payments. They argue that inflation is major sources of economic instability because it weakens incentives for work and production, distorts the allocative efficiency of the market mechanism, erodes international competitiveness of the domestic industry, and reduces growth potential. They also argued that inflation damages economic growth by lowering domestic and foreign savings, reducing efficiency of resource allocation, and deteriorating the balance-of-payments. To monetarists, stable prices are the starting point in the process of economic development. The policy choice of a country would be stabilization with growth, or stabilization without growth. Several papers are typical of the monetarist tradition. To argue that, according to Fischer and Modigliani (1980) suggested a negative and nonlinear relationship between the rate of inflation and economic growth through the new growth theory mechanism proposed a model where the agents decide the level of labor output, and an increase in inflation reduces labor supply, and producing a decrease in economic production. On the other hand, a study by Mundell and Tobin (1965), the structuralizes argue that inflation normally accompanies economic growth in developing countries because structural rigidities and bottlenecks in supply sectors prevent the elastic supply of some basic commodities such as food, housing, energy, and transportation. Increased income as a result of growth would expand demand for such basic commodities, and prices would rise. The structuralize position is that economic difficulties in developing countries have roots deeper than just the results of inflation. Thus, structuralizes thought that inflationary pressures and det erioration in the balance of payments inevitably are attendant matters of economic growth. In developing countries, there thus would be a trade-off relationship between economic growth and inflation and an attendant deterioration in balance of payments. If a developing country wants stabilization of prices and balance of payments, it must reduce the speed of economic growth, including a sacrifice of employment. Among scholars who support the structuralize position on a positive relationship between inflation and economic performance, predict a positive relationship between the rate of inflation and the rate of capital accumulation, which in turn implies a positive relationship to the rate of economic growth. But, DeGregorio (1996) and Fischer (1926) pointed out, since money and capital are substitutable, an increase in the rate of inflation increases capital accumulation by shifts in portfolios from money to capital and thereby stimulate a higher rate of economic growth was the first to establish a negative correlation between inflation and unemployment. According to Grier and Grier (2006), it presents evidence on the real effects of inflation and inflation uncertainty on output growth. Their main findings are as follows: Inflation uncertainty has a negative and significant effect on growth Once the effect of inflation uncertainty is accounted for, lagged inflation does not have a direct negative effect on output growth; and As predicted higher average inflation raises inflation uncertainty, and the overall net effect of average inflation on output growth. Differ with theory of Bortis, H. (2004), he argues that inflation is a macroeconomic phenomenon represented by a gap between global supply and global demand. Inflation affects the money-output relationship, as does deflation; both phenomena modify the purchasing power of money over domestic output. In this view, price indices cannot come to grips with the inflation phenomenon. While Cheng and Tan (2002) in their study inflation in Malaysia, suggested that main factors affecting Malaysian inflation were external (foreign trade, foreign direct investment and technology transfer). Malaysia has been comparatively successful in balancing strong economic growth with moderate levels of inflation in the periods preceding and following the Asian Financial crisis. Actually, empirical results related to low and medium inflation are of a mixed nature; some papers (mainly these analysing the developed economies) argues that moderate inflation negatively affects growth (e.g. Alexander, 1997, Gillm an et al. 2002; Gillman and Harris 2009; Gillman et al. 2001; Fischer 1993; De Gregorio 1992 and 1993) while other argues that moderate inflation is actually stimulating growth. On the theory side Friedman (1977) in his Nobel lecture argues that a positive relationship between the level of inflation and inflation uncertainty. Friedman points out higher inflation leading to greater uncertainty, which lowers welfare and efficiency of output growth. On the other hand, Ball (1992) formalizes Friedmans hypothesis using an asymmetric information game where public faces uncertainty regarding the type of policymaker in the office. One of the policymaker is willing to tolerate a recession to reduce inflation and the other is not. During the low inflation time, both type of policymakers will attempt and try to keep it low. But, when inflation is high, only the tough type or anti-inflation policymaker will bear the economic costs of disinflation. The argument that central banks should emphasize holding down inflation comes from the beliefs that inflation has an adverse effect on macroeconomic variables, such as output and productivity growth. According to Clark (1982), inflation causes misperception of the relative price levels and leads to inefficient investment plans and therefore affects productivity inversely. Furthermore, inflation erodes tax reductions for depreciation and raises the rental price of capital, which in turn causes a reduction in capital accumulation and therefore in labour productivity. In addition, according to Feldstein (1982) inflation disrupts investment plans by imposing a higher tax rate on corporate profits and through higher effective tax rates on corporate income and accordingly affects productivity (Gilson, 1984; Boskin et al., 1980). Finally, inflation distorts price signals and reduces the ability of economic agents to operate efficiently (Smyth, 1995). According to Chen and et al. (1991), it has documented a significant relationship between the US stock returns and real economic variables such as industrial production, real GNP, interest rates, inflation and money supply. Besides that, there are also otherwise arguments that there is no relation between inflation rate and gross domestic product in the long run. For instance, Faria and Carneiro (2001) investigate the relationship between inflation and output in the context of an economy facing persistent high inflation and they find that inflation does not affect real output in the long run, but that in the short-run inflation negatively affects output. In addition, scholars such as Sidrauski (1967) suggest that there is no relationship between inflation and economic growth, supporting the hypothesis of super neutrality of money. On the other hand, Sarel (1995) asserts that there is a nonlinear relationship between inflation and economic growth. Using 87 countries, he finds the existence of an inflation threshold of 8 percent. Above the threshold there is a negative relationship between inflation and economic growth, whereas under the threshold there is a positive but not significant relationship. The others studies in order to prove Sarels result, Judson and Orphanides (1996) divide Sarels sample of countries into three groups, and they find similar results to Sarel, finding a threshold of 10 percent. Ghosh and Phillips (1998a, b) study 145 countries in the period 1960-1990 again finding similar results. Paul et al. (1997) study 70 countries (of which 48 are developing economies) for the period 1960-1989. They find no causal relationship between inflation and economic growth in 40 percent of the countries, bidirectional causality among 20 percent of the countries, and unidirectional causality for the rest (either inflation to growth or vice versa). Lastly, Mendoza (1998) finds that inflation has had no effect on Mexicos long-run economic growth since he conducted the study of inflation in Mexico. 2.2.2 EMPLOYMENT Some of studies have been conducted to examine the relationship between gross domestic product and employment. For instance, according to Okun (1962) and Philips (1958), they found different relationship both of these. Okun found a negative correlation between unemployment and economic growth, then from both propositions it can be deduced a positive relationship between economic growth and inflation while Phillips proposed a positive relationship between inflation and unemployment implying the same type of relationship. In addition, Boltho and Glyn (1995) found elasticities of employment with respect to output growth in the order of 0.5 to 0.6 for a set of OECD countries. While according to Evangelista and Perani (1996) discovered evidence suggesting that restructuring of major economic sectors reduce the relationship between economic growth and employment. A specific research conducted by Seyfried, W., among the G7 countries (Canada was excluded), a positive and significant relationship between growth in value added and employment was found only in Germany and the US. In addition, according to Verdoon (1949) and Kaldor (1966), an increase in output growth of 1 percent leads to an increase in productivity and employment growth of half a percentage point each. It should be noted that the higher the productivity effects of growth, the more difficult it will be to keep unemployment from rising. According to Okuns Law an increase of the economic growth rate by 3 percent (above the normal rate) was expected to reduce the unemployment rate by 161 percentage point. Or, to put it the other way round: The gain of real GDP associated with a reduction in unemployment of one percentage point was estimated to be 3 percent. Several studies also have been conducted to examine the correlation exists between employment and inflation rate. One of the studies by Spithoven, A.H.G.M. (1995), by the end of the 1960s evidently there was no fixed relationship between unemployment and inflation. Empirical research revealed that the relationship was not consistent over time and varied sharply between countries. This was explained as follows: in the short run higher nominal wages attract more labour and engender a fall in the rates of unemployment. As soon as the workers recognize the wage rise to be purely nominal they abstain from work, and unemployment is restored to the pre-wage-rise level, but with a level of prices higher than before. Secondly, according to Brenner (1991), confronted with a combination of unemployment and inflation (stagflation), many governments abandoned efforts to regulate the economy by the Keynesian instruments. They declared fiscal policies ineffective and sought refuge in a mixture of m onetary measures with supply-side economics. According to Keynes (1946), the volume of employment is given by the point of intersection between the aggregate demand function and the aggregate supply function. This was naively interpreted and construed to imply that a rise in costs à ¢Ã¢â€š ¬Ã¢â‚¬Å" and with this was meant a rise in costs owing to increasing government expenditure à ¢Ã¢â€š ¬Ã¢â‚¬Å" will result in an upward shift of the supply curve and will cause greater unemployment and inflation. CHAPTER 3 RESEARCH METHODOLOGY AND DESIGN 3.1 MODEL SPECIFICATION This study is to examine the correlation exists between inflation rate and total employment with gross domestic product. It uses secondary data which is based on time series data. The collection of time series data from 1982 to 2006 and the scope is in Malaysia. The researcher applied STATA software to process the data and log-log model in this study. The model applied a log transformation, since log transformations help, at least partially, to eliminate the strong asymmetry in the distribution of inflation (Sarel, 1995) and (Ghosh and Phillips, 1998a, b). The logarithm equation is written in the Equation 3.1. GDP = ÃŽÂ ± + ÃŽÂ ²1In(INF) + ÃŽÂ ²2ln(EMP) + ÃŽÂ µ (Equation 3.1) Where, GDP = Gross Domestic Product ÃŽÂ ± = Constant ÃŽÂ ²1 = Inflation ÃŽÂ ²2 = Employment ÃŽÂ µ = Error term In above equation, it shows clearly dependent variable that has been applied in this study is gross domestic product, besides that, the researcher also used two independent variables which are quantitative variables, they are inflation rate and total employment. 3.1.1 DEPENDENT VARIABLE The dependent variable is the variable of primary interest to the researcher. The researchers goal is to understand and describe the dependent variable, and to explain its variability, or predict it (Sekaran, 2006). Dependent variable of this study is factor contributed to the gross domestic product. According to Zikmund (2000), independent variable is a criterion that predicted or explained. It show that the component contributed to improving of gross domestic product depend on the listed independent variables. 3.1.2 INDEPENDENT VARIABLES According to Zikmund (2000), independent variables that expected to influence the dependent variable. Refer to (Burn and Bush, 2000), independent variables are those variables over which the researcher has some control and wishes to manipulate. In this study, two independent variables will influence the dependent variables. They are inflation rate and employment. 3.2 DATA SET AND METHODOLOGY The collections of data in this research only gain from secondary data and based on time series data which are from 2000 to 2010. The researcher has considered annual data of real GDP, inflation rate and employment. All the data on the growth rate of real GDP, Inflation and total employment were obtained from Department of Statistics Malaysia database. GDP is considered per capita. In addition, according to Aigenger (2005) per capita real GDP is also used as an alternative measure of productivity, as some theoretical models do. Moreover, according to OECD (2001), living standards as represented by per capita income reflects productivity since the former is determined, to a significant extent, by the latter. CPI consider in weight 100 while employment in number of labor. The variables were selected based on relevant economic theories that allow for the interaction among inflation rate and total employment in addition to response to GDP. 3.3 TECHNIQUE ANALYSIS DATA In this research, the researcher has applied unit SPSS in order to determine time series data is stationary or non stationary about the correlation between inflation rate and employment with gross domestic product. The researcher examines the existence of a long-run relationship between inflation and employment with GDP using a vector error-correction model (VECM) after applying Johansens (1988, 1990, and 1995) cointegration technique. We conduct a test for weak exogeneity in order to do inference. Then, the researcher conduct stability test by using Jarque Bera test in order to test normality distribution between the variables selected. Finally, a modified version of the Granger causality test is applied in order to analyze causality between the variables. 3.4.1.1 Multiple Regression Analysis Multiple Linear regression analysis is an analysis of the relationship between one variable (dependent variable) and set of variable (independent variables). It is used by the researcher to test the hypothesis. As in all hypothesis tests, the goal is to reject the null hypothesis and accept the alternative hypothesis. This technique will identify how much of the variance in the dependent variables can be explained by independent variables. This analysis is used primarily for the purpose of prediction. The regression model can be used to predict the value of the proposed model in the study is: GDP = f (INF, EMP) GDP = ÃŽÂ ± + ÃŽÂ ²1 Inflation+ ÃŽÂ ²2 Employment + ÃŽÂ µ Where, GDP = Gross Domestic Pr Relationship between Inflation Rates and Employment Relationship between Inflation Rates and Employment CHAPTER 1 Gross Domestic Product as an indicator of wealth and therefore quality of life has long been criticized (Mederly, P. and et al. 2003). Gross Domestic Product (GDP) is the value of total production of goods and services in a country over a specified period, typically a year. The gross domestic product (GDP) or gross domestic income (GDI) is a measure of a countrys overall economic output GDP can be determined in three ways, all of which should in principle give the same result. The most direct of the three is the product approach, which sums the outputs of every class of enterprise to arrive at the total. The expenditure approach works on the principle that all of the product must be bought by somebody, therefore the value of the total product must be equal to peoples total expenditures in buying things. The income approach works on the principle that the incomes of the productive factor must be equal to the value of their product, and determines GDP by finding the sum of all producer s incomes (Bureau of Economic Analysis, U.S Department of Commerce, 2007). The most common approach to measure GDP is the expenditure method: GDP= private consumption + gross investment + government spending + (exports à ¢Ã‹â€ imports) GDP = C + I + G + (X-M) (Equation 1.1) An event in 1975 that remind us the current GDP in our country where the Malaysian economy slumped into its great recession, with a GDP growth rate of only 0.8 percent, compared to 8.3 percent in 1974. This is one of the effects of increase in oil prices and then substantial price increase in 1973 were bought about mainly shortage of food and raw materials arising from bad weather and increased aggregate demand (Cheng, M.Y. and Tan,.H.B. 2002). According to the above circumstances occurred in 1975, the researcher has choosing one of variables that may relate with fluctuation of GDP which is inflation rate. Inflation means either an increase in the money supply or an increase in price levels. Generally, when we hear about inflation, we are hearing about a rise in prices compared to some benchmark. The study of the effects of inflation on economic growth continues to be an important and complex topic in economics. If inflation has real economic effects, then governments can influence economic performance through monetary policy (Risso, W.A and Carrera, E.J.S, 2009). Therefore, investigating how inflation affects economic growth pertains directly to the optimal design of monetary policy. Results from such studies are particularly important for economies. Besides the inflation, the researcher has considered total employment as one of the variable in the model since economic growth and employment are correlated between each others. The relationship between unemployment and GDP is called Okuns law. It is the association of a higher national economic output with the decrease in national unemployment. This is because in order to increase the economic output of a country, people will need to go back to work, thus lowering unemployment. In order to support the relationship exist between GDP and employment, the researcher has found out the issue supporting the theory that GDP and employment has a positive relationship between each others. According to Hassan, M.K.H. and et al. (2010), in the period of 1996 -1997, the manufacturing sector experienced a rapid growth producing the employment rate in the sector to grow at 7.7 percent per annum but later declining to negative 3.6 percent in 1998 due to the economic recession. In addition, in year 2000, the Malaysian manufacturing sector contributed 33.4% to gross domestic product (GDP), 85.2% to total export and 27.6% to total employment. 1.2 PROBLEM STATEMENT Inflation is a major source of economic instability because it weakens incentives for work and production, distorts the allocate efficiency of the market mechanism, erodes international competitiveness of the domestic industry, and reduces growth potential. According to study by Fischer and Modigliani (1980) suggested a negative and nonlinear relationship between the rate of inflation and economic growth through the new growth theory mechanism. Furthermore, inflation also damages economic growth by lowering domestic and foreign savings, reducing efficiency of resource allocation, and deteriorating the balance-of payments (Risso, W.A. and Carrera, E.J.S., 2009). According to Cheng, M.Y. and Tan, H.B. (2002), the economy has experienced episode of high (1973-1974, 1980-1981) and low (1985-1987) regimes of inflation, and was able to contain low and stable inflation during the high economy growth period of 1988-1996. The second problem statement that should be concerns since the employment can affect the economic growth and it is important variable to determine the quality of production for national output and next will influence the GDP of our country. For example, in the early 1990s, the unemployment rate increased for about a year following the end of the previous recession. Coming out of a recession, companies are thought to be reluctant to hire many more workers until they are convinced about the sustainability of a new economic recovery while people who had left the labor force during the recession return to seek to find jobs (Seyfried, W.). Therefore, the researcher conducts this research in order to examine the correlation exists between inflation rate and employment with GDP so that we can help the country to mitigate the problem occurs by supporting the governments policies to increase the countrys GDP. In addition, this research also useful since the results of the studies can be used in policys decision for resource allocation in order to accelerate economic growth. 1.3 OBJECTIVES The objectives of the study are to: 1.3.1 Analyze the relationship between Inflation Rate and Gross Domestic Product in terms of magnitude and direction. 1.3.2 Analyze the relationship between Total Employment and Gross Domestic Product in terms of magnitude and direction. 1.4 SIGNIFICANCE OF THE STUDY The significances of this study are as follow: 1.4.1 Researcher This study will help the researcher to complete their course requirement and will be as guidelines for their field of work in the future. The researcher can gain many experiences in order to complete this research. There are lot of weaknesses may be obtained and this will encourage the researcher to provide the better research in the future. Future researcher will know and more understanding about gross domestic product when conduct this research. It will give the knowledge to the researcher to identify the correlation exist between inflation rate and employment and it always make the researcher briefing to know deeply and applied the study. 1.4.2 Organization This study might help the organization in analyzing the countrys economic condition in order to prevent and reduce the risk during the inflation and know the effects of the crisis occurs to them. This study also may give some guidance to them to protect their company and industry itself. 1.4.3 Public This study can inform and gives some knowledge to the public the relationship between economic growth, inflation rate and employment. They also can make preparation to face the increasing in inflation rate and able to survive in that situation. 1.5 SCOPE OF THE STUDY The researcher chooses to conduct the research about GDP in Malaysia from 2000 until 2010 In this study, the researcher wants to determine the correlation exist between inflation rate and employment with GDP in Malaysia. It is important because as economic planners and forecasters used the GDP per capita in monitoring economic growth trend for time series. The collection of data of GDP, inflation rate and total employment were collected from Department Of Statistics Malaysia in quarterly basis. 1.6 THEORETICAL FRAMEWORK Figure 1.1: Theoretical Framework INFLATION RATE GROSS DOMESTIC PRODUCT EMPLOYMENT RATE RATE Independent variables Dependent Variable Figure 1.1 represents the dependent variable and independent variables in this study. The function of theoretical framework has been clarified by Sekaran, U. (2003) which is a conceptual model of how one theorizes or makes logical sense of the relationship among the several factors that have been identified as important to the problem. Figure above clearly discuss the correlation between Gross Domestic Product which is variable primary to the researcher while Inflation Rate and Employment act as independent variable which is influences the dependent variable. 1.7 HYPOTHESIS In classical test of significant, two kind of hypothesis are used. They are Null Hypothesis and Alternate Hypothesis. Hypothesis is a conjectural statement that describes the relationship among variable even negative or positive. Null hypothesis which is represent by H0 symbol to show that the relationship between independent and dependent variable is not exist. However alternate hypothesis is representing by H1 symbol to show that the relationship is existing between both dependent and independent variable. According to Sakaran (2004), a hypothesis defines as a logically conjectured relationship between two or more variables expressed in the form of testable statement. Relationship a conjectured on the basis on the network of associations established in the theoretical framework formulated for the research study. There are two hypotheses that can describes the correlation exists between dependent variable and independent variables. Therefore the hypothesis that can be tested as follows: Inflation and GDP H0: there is no significant relationship between inflation and GDP. H1: there is a significant relationship between inflation and GDP. Employment and GDP H0: there is no significant relationship between employment and GDP. H1: there is a significant relationship between employment and GDP. 1.8 LIMITATION / CONSTRAINTS The limitations / constraints are: 1.8.1 Time constraint The length of time is limited since the researcher does not have much time to make detailed research. The time provided only three months and the researcher need to divide time properly to complete the research because the process of collecting data is quite difficult. 1.8.2 Cost constraint The cost involves is quite high since as a student, the researcher only depend on the loan applied. Examples of cost involve in order completing this research such as cost of printing, cost of maintaining the laptop, cost of surfing the internet and etc. 1.8.3 Data constraint Since the researcher use the secondary data, the collection of data that have been publish are so limited and the related material are not very supporting the topic of research. 1.8.4 Lack of experience The researcher is less of experience in conducting the research therefore needs to refer the researchers advisor to process the data and learning the skill that needed as a good researcher. CHAPTER 2 LITERATURE REVIEW 2.1 DEPENDENT VARIABLE 2.1.1 GROSS DOMESTIC PRODUCT (GDP) Generally, according to Chan, W.W. and Lam, J.C. (2000), gross domestic product is a common measure of the economic well-being of a society. When government officials plan for the future, they consider the various economics sectors contributed to the gross domestic products. In the other study by Ivanov, S. and Webster, C. (2007), they use the growth of real GDP per capita gr as a measure of economic growth in line with other publications in the field (see Ivanov and Webster, 2007; Lopes et al., 2002; Plosser, 1992). The function of GDP also has been explained by Kosmidou, K. (2008) where gross domestic product (GDP) is among the most commonly used macroeconomic indicators, as it is a measure of total economic activity within an economy. The gross domestic product growth (GDPGR), calculated as the annual change of the GDP, is used as a measure of the macroeconomic conditions. The significance between GDP, foreign trade and foreign direct investment has been discussed by Liu Ying and Cui Riming (2008) where the economy is highlighted by the significant performance of both its economic growth and its foreign trade and foreign direct investment. Under this background, the correlation of foreign trade, foreign direct investments and economic growth in has become an important issue for academic research. Previous studies support that foreign trade and foreign direct investment have positive impacts on gross domestic product (GDP). In the study by Malul, M. and et al. (2008), the GDPpc is used mainly to compare the standard of living in different countries. It means that the higher of cost of living in a country, the higher earning of gross domestic product of the country. According to Wong, K.Y.(2008),economic growth of an economy refers to the expansion of its production possibility set, as a result of accumulation of primary factors such as labor and capital (physical and human), or improvement of production technologies. However, because the production possibility frontier (PPF) of an economy is not observable, economic growth is usually measured in terms of the growth rate of some observable variables such as real GDP or real per capita GDP. Besides that GDP also one of the result of the countrys economic activities based on the statement of Daly and Cobb (1989), GDP expresses the content of physical flows of à ¢Ã¢â€š ¬Ã…“capital, industrial production, services, resources and agricultural productà ¢Ã¢â€š ¬?. The scientific research has been conducted by Ligon and Sadoulet (2007) using a sample of 42 countries show that GDP growth, which comes from agriculture is at least twice as effective in reducing poverty compared to GDP growth coming from nonagricultural areas. In order to know the correlation between inflation and growth, Gokal, V. and Hanif, S. (2004), stated that the tests revealed that a weak negative correlation exists between inflation and growth, while the change in output gap bears significant bearing. The causality between the two variables ran one-way from GDP growth to inflation. While, according to some consensus exists, suggesting that macroeconomic stability, specifically defined as low inflation, is positively related to economic growth. 2.2 INDEPENDENT VARIABLES 2.2.1 INFLATION RATE (INF) Inflation on economic growth continues to be an important and complex topic in economics. If inflation has real economic effects, then governments can influence economic performance through monetary policy. Therefore, investigating how inflation affects economic growth pertains directly to the optimal design of monetary policy. According to Andres and Hernando (1999), for example, reducing inflation by one percentage point when the rate is 20 percent which results in an increase in the growth rate of 0.5 percent, compared to reducing inflation by one percentage point when the inflation rate is around 5 percent, which results in a decrease in the growth rate by 1 percent. Furthermore, a study by Mallik and Chowdhury (2001), the structuralisms argue that inflation is necessary for economic growth, whereas the monetarists argue the opposite, that is, inflation is detrimental to economic growth such debate started in the 1950s, focused on developing countries, which had long suffered fro m low-growth rates with high rates of inflation and larger deficits in the balance of payments. In order of inflation, the monetarists argue that price stability promotes economic growth and protects the balance of payments. They argue that inflation is major sources of economic instability because it weakens incentives for work and production, distorts the allocative efficiency of the market mechanism, erodes international competitiveness of the domestic industry, and reduces growth potential. They also argued that inflation damages economic growth by lowering domestic and foreign savings, reducing efficiency of resource allocation, and deteriorating the balance-of-payments. To monetarists, stable prices are the starting point in the process of economic development. The policy choice of a country would be stabilization with growth, or stabilization without growth. Several papers are typical of the monetarist tradition. To argue that, according to Fischer and Modigliani (1980) suggested a negative and nonlinear relationship between the rate of inflation and economic growth through the new growth theory mechanism proposed a model where the agents decide the level of labor output, and an increase in inflation reduces labor supply, and producing a decrease in economic production. On the other hand, a study by Mundell and Tobin (1965), the structuralizes argue that inflation normally accompanies economic growth in developing countries because structural rigidities and bottlenecks in supply sectors prevent the elastic supply of some basic commodities such as food, housing, energy, and transportation. Increased income as a result of growth would expand demand for such basic commodities, and prices would rise. The structuralize position is that economic difficulties in developing countries have roots deeper than just the results of inflation. Thus, structuralizes thought that inflationary pressures and det erioration in the balance of payments inevitably are attendant matters of economic growth. In developing countries, there thus would be a trade-off relationship between economic growth and inflation and an attendant deterioration in balance of payments. If a developing country wants stabilization of prices and balance of payments, it must reduce the speed of economic growth, including a sacrifice of employment. Among scholars who support the structuralize position on a positive relationship between inflation and economic performance, predict a positive relationship between the rate of inflation and the rate of capital accumulation, which in turn implies a positive relationship to the rate of economic growth. But, DeGregorio (1996) and Fischer (1926) pointed out, since money and capital are substitutable, an increase in the rate of inflation increases capital accumulation by shifts in portfolios from money to capital and thereby stimulate a higher rate of economic growth was the first to establish a negative correlation between inflation and unemployment. According to Grier and Grier (2006), it presents evidence on the real effects of inflation and inflation uncertainty on output growth. Their main findings are as follows: Inflation uncertainty has a negative and significant effect on growth Once the effect of inflation uncertainty is accounted for, lagged inflation does not have a direct negative effect on output growth; and As predicted higher average inflation raises inflation uncertainty, and the overall net effect of average inflation on output growth. Differ with theory of Bortis, H. (2004), he argues that inflation is a macroeconomic phenomenon represented by a gap between global supply and global demand. Inflation affects the money-output relationship, as does deflation; both phenomena modify the purchasing power of money over domestic output. In this view, price indices cannot come to grips with the inflation phenomenon. While Cheng and Tan (2002) in their study inflation in Malaysia, suggested that main factors affecting Malaysian inflation were external (foreign trade, foreign direct investment and technology transfer). Malaysia has been comparatively successful in balancing strong economic growth with moderate levels of inflation in the periods preceding and following the Asian Financial crisis. Actually, empirical results related to low and medium inflation are of a mixed nature; some papers (mainly these analysing the developed economies) argues that moderate inflation negatively affects growth (e.g. Alexander, 1997, Gillm an et al. 2002; Gillman and Harris 2009; Gillman et al. 2001; Fischer 1993; De Gregorio 1992 and 1993) while other argues that moderate inflation is actually stimulating growth. On the theory side Friedman (1977) in his Nobel lecture argues that a positive relationship between the level of inflation and inflation uncertainty. Friedman points out higher inflation leading to greater uncertainty, which lowers welfare and efficiency of output growth. On the other hand, Ball (1992) formalizes Friedmans hypothesis using an asymmetric information game where public faces uncertainty regarding the type of policymaker in the office. One of the policymaker is willing to tolerate a recession to reduce inflation and the other is not. During the low inflation time, both type of policymakers will attempt and try to keep it low. But, when inflation is high, only the tough type or anti-inflation policymaker will bear the economic costs of disinflation. The argument that central banks should emphasize holding down inflation comes from the beliefs that inflation has an adverse effect on macroeconomic variables, such as output and productivity growth. According to Clark (1982), inflation causes misperception of the relative price levels and leads to inefficient investment plans and therefore affects productivity inversely. Furthermore, inflation erodes tax reductions for depreciation and raises the rental price of capital, which in turn causes a reduction in capital accumulation and therefore in labour productivity. In addition, according to Feldstein (1982) inflation disrupts investment plans by imposing a higher tax rate on corporate profits and through higher effective tax rates on corporate income and accordingly affects productivity (Gilson, 1984; Boskin et al., 1980). Finally, inflation distorts price signals and reduces the ability of economic agents to operate efficiently (Smyth, 1995). According to Chen and et al. (1991), it has documented a significant relationship between the US stock returns and real economic variables such as industrial production, real GNP, interest rates, inflation and money supply. Besides that, there are also otherwise arguments that there is no relation between inflation rate and gross domestic product in the long run. For instance, Faria and Carneiro (2001) investigate the relationship between inflation and output in the context of an economy facing persistent high inflation and they find that inflation does not affect real output in the long run, but that in the short-run inflation negatively affects output. In addition, scholars such as Sidrauski (1967) suggest that there is no relationship between inflation and economic growth, supporting the hypothesis of super neutrality of money. On the other hand, Sarel (1995) asserts that there is a nonlinear relationship between inflation and economic growth. Using 87 countries, he finds the existence of an inflation threshold of 8 percent. Above the threshold there is a negative relationship between inflation and economic growth, whereas under the threshold there is a positive but not significant relationship. The others studies in order to prove Sarels result, Judson and Orphanides (1996) divide Sarels sample of countries into three groups, and they find similar results to Sarel, finding a threshold of 10 percent. Ghosh and Phillips (1998a, b) study 145 countries in the period 1960-1990 again finding similar results. Paul et al. (1997) study 70 countries (of which 48 are developing economies) for the period 1960-1989. They find no causal relationship between inflation and economic growth in 40 percent of the countries, bidirectional causality among 20 percent of the countries, and unidirectional causality for the rest (either inflation to growth or vice versa). Lastly, Mendoza (1998) finds that inflation has had no effect on Mexicos long-run economic growth since he conducted the study of inflation in Mexico. 2.2.2 EMPLOYMENT Some of studies have been conducted to examine the relationship between gross domestic product and employment. For instance, according to Okun (1962) and Philips (1958), they found different relationship both of these. Okun found a negative correlation between unemployment and economic growth, then from both propositions it can be deduced a positive relationship between economic growth and inflation while Phillips proposed a positive relationship between inflation and unemployment implying the same type of relationship. In addition, Boltho and Glyn (1995) found elasticities of employment with respect to output growth in the order of 0.5 to 0.6 for a set of OECD countries. While according to Evangelista and Perani (1996) discovered evidence suggesting that restructuring of major economic sectors reduce the relationship between economic growth and employment. A specific research conducted by Seyfried, W., among the G7 countries (Canada was excluded), a positive and significant relationship between growth in value added and employment was found only in Germany and the US. In addition, according to Verdoon (1949) and Kaldor (1966), an increase in output growth of 1 percent leads to an increase in productivity and employment growth of half a percentage point each. It should be noted that the higher the productivity effects of growth, the more difficult it will be to keep unemployment from rising. According to Okuns Law an increase of the economic growth rate by 3 percent (above the normal rate) was expected to reduce the unemployment rate by 161 percentage point. Or, to put it the other way round: The gain of real GDP associated with a reduction in unemployment of one percentage point was estimated to be 3 percent. Several studies also have been conducted to examine the correlation exists between employment and inflation rate. One of the studies by Spithoven, A.H.G.M. (1995), by the end of the 1960s evidently there was no fixed relationship between unemployment and inflation. Empirical research revealed that the relationship was not consistent over time and varied sharply between countries. This was explained as follows: in the short run higher nominal wages attract more labour and engender a fall in the rates of unemployment. As soon as the workers recognize the wage rise to be purely nominal they abstain from work, and unemployment is restored to the pre-wage-rise level, but with a level of prices higher than before. Secondly, according to Brenner (1991), confronted with a combination of unemployment and inflation (stagflation), many governments abandoned efforts to regulate the economy by the Keynesian instruments. They declared fiscal policies ineffective and sought refuge in a mixture of m onetary measures with supply-side economics. According to Keynes (1946), the volume of employment is given by the point of intersection between the aggregate demand function and the aggregate supply function. This was naively interpreted and construed to imply that a rise in costs à ¢Ã¢â€š ¬Ã¢â‚¬Å" and with this was meant a rise in costs owing to increasing government expenditure à ¢Ã¢â€š ¬Ã¢â‚¬Å" will result in an upward shift of the supply curve and will cause greater unemployment and inflation. CHAPTER 3 RESEARCH METHODOLOGY AND DESIGN 3.1 MODEL SPECIFICATION This study is to examine the correlation exists between inflation rate and total employment with gross domestic product. It uses secondary data which is based on time series data. The collection of time series data from 1982 to 2006 and the scope is in Malaysia. The researcher applied STATA software to process the data and log-log model in this study. The model applied a log transformation, since log transformations help, at least partially, to eliminate the strong asymmetry in the distribution of inflation (Sarel, 1995) and (Ghosh and Phillips, 1998a, b). The logarithm equation is written in the Equation 3.1. GDP = ÃŽÂ ± + ÃŽÂ ²1In(INF) + ÃŽÂ ²2ln(EMP) + ÃŽÂ µ (Equation 3.1) Where, GDP = Gross Domestic Product ÃŽÂ ± = Constant ÃŽÂ ²1 = Inflation ÃŽÂ ²2 = Employment ÃŽÂ µ = Error term In above equation, it shows clearly dependent variable that has been applied in this study is gross domestic product, besides that, the researcher also used two independent variables which are quantitative variables, they are inflation rate and total employment. 3.1.1 DEPENDENT VARIABLE The dependent variable is the variable of primary interest to the researcher. The researchers goal is to understand and describe the dependent variable, and to explain its variability, or predict it (Sekaran, 2006). Dependent variable of this study is factor contributed to the gross domestic product. According to Zikmund (2000), independent variable is a criterion that predicted or explained. It show that the component contributed to improving of gross domestic product depend on the listed independent variables. 3.1.2 INDEPENDENT VARIABLES According to Zikmund (2000), independent variables that expected to influence the dependent variable. Refer to (Burn and Bush, 2000), independent variables are those variables over which the researcher has some control and wishes to manipulate. In this study, two independent variables will influence the dependent variables. They are inflation rate and employment. 3.2 DATA SET AND METHODOLOGY The collections of data in this research only gain from secondary data and based on time series data which are from 2000 to 2010. The researcher has considered annual data of real GDP, inflation rate and employment. All the data on the growth rate of real GDP, Inflation and total employment were obtained from Department of Statistics Malaysia database. GDP is considered per capita. In addition, according to Aigenger (2005) per capita real GDP is also used as an alternative measure of productivity, as some theoretical models do. Moreover, according to OECD (2001), living standards as represented by per capita income reflects productivity since the former is determined, to a significant extent, by the latter. CPI consider in weight 100 while employment in number of labor. The variables were selected based on relevant economic theories that allow for the interaction among inflation rate and total employment in addition to response to GDP. 3.3 TECHNIQUE ANALYSIS DATA In this research, the researcher has applied unit SPSS in order to determine time series data is stationary or non stationary about the correlation between inflation rate and employment with gross domestic product. The researcher examines the existence of a long-run relationship between inflation and employment with GDP using a vector error-correction model (VECM) after applying Johansens (1988, 1990, and 1995) cointegration technique. We conduct a test for weak exogeneity in order to do inference. Then, the researcher conduct stability test by using Jarque Bera test in order to test normality distribution between the variables selected. Finally, a modified version of the Granger causality test is applied in order to analyze causality between the variables. 3.4.1.1 Multiple Regression Analysis Multiple Linear regression analysis is an analysis of the relationship between one variable (dependent variable) and set of variable (independent variables). It is used by the researcher to test the hypothesis. As in all hypothesis tests, the goal is to reject the null hypothesis and accept the alternative hypothesis. This technique will identify how much of the variance in the dependent variables can be explained by independent variables. This analysis is used primarily for the purpose of prediction. The regression model can be used to predict the value of the proposed model in the study is: GDP = f (INF, EMP) GDP = ÃŽÂ ± + ÃŽÂ ²1 Inflation+ ÃŽÂ ²2 Employment + ÃŽÂ µ Where, GDP = Gross Domestic Pr