Economic Growth (SS-side Policies)

Question 1

What are the FPs employed to increase SRAS?

Answer 1

• Reduced tariffs
• Reduced government fees and rental
• Government subsidies (CPF, FOPs)

Question 2

What is the Jobs Support Scheme (2022)?

Answer 2

It was a scheme that provided wage subsidies for firms in view of the pandemic.
It reduces COP and increases SRAS.

Question 3

What are the limitations of FPs to increase SRAS?

Answer 3

• Time lag in executing the policy (economy might be worsened beyond recovery such that the policy is now ineffective, or the recession might already be over and inflation occurs)
• Budget deficit (might resort to borrowing or Fiscal reserves)

Question 4

What are the FPs employed to increase LRAS?

Answer 4

• Increasing quality and quantity of capital
  (Govt expenditure on networks, communication; Investment in R&D and tech; Attracting FDIs)
• Increasing quality and quantity of labour
  (Skills Training, expenditure on healthcare, loosening immigration policy, raising re-employment age, compulsory education)

Question 5

How does the ERP increase SRAS?

Answer 5

Appreciation can be used to decrease the prices of imported raw materials to decrease costs of production.

Question 6

When would appreciation be useful in increasing SRAS?

Answer 6

It is much more significant if the nation is import-reliant and has a high proportion of imported inputs as cost of production will significantly decrease.

Question 7

What are some drawbacks/limitations of ERP in increasing SRAS?

Answer 7

• Aggregate demand falls as export revenue falls and import revenue rises, which causes a fall in net exports.
• Availability of foreign currency reserves to buy domestic currency hinders the effectiveness of ERP.

Question 8

How does IPP increase SRAS?

Answer 8

• Price ceiling (eg. Rental ceiling) to reduce COP.
• Lowering CPF contributions/wages to reduce firm COP.