economic growth

Question 1

what is an example of increase in investments? (FDI) -> rise in AD

Answer 1

Some of the recently recorded foreign investments were Neste, a corporate leader in renewable and circular solutions which invested almost S$2bn in Singapore in 2018. In March 2022, the inventor of bagless vacuum cleaner, Dyson, pledged to invest S$1.5bn over the next four years.

Question 2

what is an example of domestic investment? -> rise in AD

Answer 2

In 2020, Singapore saw a surge in domestic investment commitments from local companies which accounted for 17.3 percent of capital investments in Singapore – a 9.2 percent increase from the previous year.

Question 3

what is the multiplier process?

Answer 3

The initial rise in AD will cause an unplanned fall in the firm’s inventory. To maintain their inventory, firms will need to employ more resources such as labour. As more labour is hired, they receive more income. The purchasing power of the labour force rises. This leads to a multiple rise in induced consumption. Each subsequent increase in induced consumption will be increasingly smaller. This results in a multiple rightward shift in the AD curve, where AD is increasing at a decreasing rate The overall rise in AD (from AD0 to AD1 to AD2) outward reflect a rise in national income (Y0 to Y1 to Y2).

Question 4

what is an example of COP decreasing thus SRAS rising?

Answer 4

In early 2022, prices of crude oil started to climb, due to the Russia-Ukraine conflict, and eventually surpassed the US$120 per barrel price in June 2022. However, with increased oil production since then, economist has seen the crude oil price falling to $89 per barrel in August.

Question 5

what is an example of foreign demand increasing? -> rise in AD

Answer 5

prior to the pandemic, as countries like China and the Eurozone were experiencing economy growth, this means that they have higher national income and has greater purchasing power to increase demand for Singapore’s exports such as semiconductors and semiconductor equipment and externally oriented service sectors such as finance and insurance transportation and storage and wholesale trade.

in 2022, sg’s trade to GDP ratio was 336.86%

Question 6

what is an example of how LRAS can increase?

Answer 6

to achieve potential growth, governments can increase the quantity of labour available in the economy through a less stringent immigration policy to attract migrant workers and labour with low and high skill levels. Alternatively, governments can implement pro-family work policies (for example Singapore government encouraging employers to introduce more flexible working hours so that more women are willing to enter the workforce) and tax incentives to encourage a greater proportion of the population of the population to join the labour force, increasing labour participation rate.

Question 7

actual growth definition

Answer 7

Actual (economic) growth refers to an increase in a country’s real national income or GDP. It could be caused by an increase in either the (one or more) components of aggregate demand (AD) or/and the determinant of short run aggregate supply (SRAS).

Question 8

potential growth definition

Answer 8

Potential (economic) growth refers to an increase in a country’s productive capacity represented by an increase in a country’s long run aggregate supply (LRAS). The determinants of potential growth are due to an increase in quality and quantity of factors of production to ensure growth is sustained in the long run.

Question 9

inclusive growth definition

Answer 9

Inclusive growth is achieved when the economy grows at a strong and stable rate without resulting in significant worsening of income or wealth inequality.

Question 10

sustained growth definition

Answer 10

Sustained growth is non-inflationary economic growth that can be maintained and it is achieved by having both actual and potential growth.

Question 11

rapid economic growth

Answer 11

Economic growth occurs when the real output of a country increases. It is commonly measured by the percentage increase in real gross domestic product (GDP) annually. Rapid economic growth implies that the increases in GDP are mainly driven by increases in AD.

Question 12

what is an unsustainable growth example?

Answer 12

From 2007 to 2015, China’s gross domestic product (GDP) increased by 2.6 times. At the same time, the total amount of industrial waste gas emission also increased by 1.8 times.

Question 13

Short run SS-side increase SRAS example?

Answer 13

In Singapore, a number of fiscal measures were deployed to help businesses tied over the COVID-19 pandemic. The government co-funded between 25% and 75% of the first $4600 of gross monthly wages of local employees for up to 23 months under the Jobs Support Scheme.

Question 14

Long run SS-side increase LRAS example?

Answer 14

Singapore government has provided subsidies for retraining and education, such as the Continuing Education and Training Scheme and SkillsFuture Scheme to help workers upgrade and improve their skills. Even during the COVID-19 pandemic, the Singapore government has made investments beyond the urgent needs of the crisis. The government injected $300 million to boost private investment in the deep technology sectors such as advanced manufacturing and agri-Food technology.

Question 15

what is an example of rising income inequality due to EG?

Answer 15

In 2010, the Singapore economy grew by a record 14.7% but also ranked second highest in terms of the world GINI coefficient score.

Question 16

what is an example of supply side policy to improve quantity of labour?

Answer 16

To increase the inflow of high-skilled foreign workers, foreign manpower policies have been eased to allow the hiring of a greater number of workers in the service sectors, giving them incentives to work in new growth areas like the Integrated Resorts and the health sector.

Question 17

what is an example of supply side policy to improve quality of labour?

Answer 17

For this purpose, the government implements programmes such as the Skills Programme for Upgrading and Resilience (SPUR) which subsidizes training and covers absentee payroll to facilitate skills upgrading.

Question 18

what is demand side expansionary fiscal policy?

Answer 18

The government can decide to stimulate the economy indirectly through text rates and transfer payments or directly to increase the level of spending. By spending directly on goods and services and raising government expenditure G, aggregate demand will rise directly. This could be through spending budget on improving infrastructure. Households with lower personal income tax will have higher disposable income and purchase more consumption goods, leading to consumption expenditure to rise. Firms with lower corporate income tax will have higher after tax profits to spend on capital goods through investment leading to investment expenditure to rise alternatively.

Question 19

policies for sustainable growth

Answer 19

1. tax to reduce pollution eg carbon tax
2. quotas and regulation -> restrict the amount of production by firms that cause pollution and environmental degradation. For examples, China restrict the amount of harvesting of wild plants that are grown in the semi-arid areas. Many Chinese cities also set regulation on the amount of greenhouse guesses that might be emitted by firms, particularly the energy generators.

Question 20

policy to achieve inclusive growth

Answer 20

Singapore uses progressive taxes, i.e. means higher income earners pay a proportionately higher tax, to reduce income inequality. Thus, the income inequality after taxes will be reduced. The higher tax revenue received would be redistributed as transfer payment in the form of welfare payment and subsidies to various groups who are left behind.

This includes those who do not hold jobs such as retirees, the sick and disabled and students. An example is the Financial Assistance Scheme (FAS) that helps to defray the cost of education and increase disposable income provided to students from less privileged families. Another example is Workfare Income Supplement that helps to increase the income of low-income workers.