Everyday woes Flashcards
What is the definition of economic growth?
Economic growth is the increase in value of the goods and services produced by an economy.
How can economic growth be measured?
By an increase in real output or GDP of an economy over time.
What does the business cycle reflect?
Fluctuations in the economy’s level of real output over time.
What are the four phases of the business cycle?
- Peak
- Trough
- Expansion
- Recession
What is a peak in the business cycle?
The highest point of GDP.
What is a trough in the business cycle?
The lowest point of GDP.
What occurs during an expansion phase of the business cycle?
Demand begins to increase, improving the economy.
What characterizes a recession?
Economic contraction: A general slowdown in economic activity.
What is actual economic growth?
Occurs when the economy is producing more of either consumer and/or capital goods.
How is actual economic growth represented on the production possibilities frontier (PPF)?
By a movement from a point within the PPF towards a point on the PPF curve.
What causes actual economic growth?
A boost in Aggregate Demand (AD).
What effect does an increase in Aggregate Demand have on the economy?
It has an inflationary effect as the general price level increases.
What is potential economic growth?
Occurs when the economy is already producing at its maximum capacity or at full employment.
How is potential economic growth represented on the PPF?
By an outward shift of the production possibilities frontier (PPF).
What causes potential economic growth?
- Increase in quality and quantity of resources
- Improvement in technology
What defines a recession?
Negative growth for 2 consecutive quarters or more.
What is a negative output gap?
When the actual output is less than potential output.
What indicates that an economy is likely slowing down or in recession?
A negative output gap.
What is a positive output gap?
When the actual output is more than the full capacity output.
What problem is associated with a positive output gap?
Rising prices.
What are the components of Aggregate Demand (AD) that can lead to actual economic growth?
- Consumption expenditure
- Investment spending
- Government expenditure
- Net exports
What factors contribute to potential economic growth?
- Quantity of factors of production
- Population size
- Quality of factors of production
- Improvement in technological process
- Investment
What are some benefits of economic growth?
- Higher income
- Higher employment opportunities
- Increased goods for consumption
- Protection of the environment
- Higher tax revenue to redistribute income
What are some costs of economic growth?
- Income inequality
- Pollution & other negative externalities
- Loss of non-renewable resources
- Poorer standard of living
Why is economic growth important?
- Increases the standard of living
- Encourages investment
- Creates jobs and improves job quality
What is inflation?
A sustained increase in the general price level of goods and services in the economy.
The change in the consumer price index (CPI) is commonly used as a measure of price movements.
How is the inflation rate (%) measured?
CPI current year / CPI previous year x 100
This formula calculates the percentage change in the Consumer Price Index over a year.
What are the limitations of using CPI to measure inflation?
- Does not factor in substitution
- Selection of a representative basket of goods
- Weightage of each good in the basket
- Does not factor in changes in the quality of goods
These limitations can affect the accuracy of CPI as a measure of inflation across different households.
What causes demand-pull inflation?
Caused by factors that change aggregate demand.
It involves a persistent rise in the aggregate demand within a country.
What causes cost-push inflation?
Caused by increases in production costs.
Supply-side factors lead to this type of inflation.
What are the benefits of mild inflation?
- Encourages business activities & growth
- Rising asset values
- Price of imports could be relatively lower
Mild inflation can create optimism in the economy.
What are the costs of inflation?
- Uncertainty about the future
- Erodes purchasing power of money
- Reduced international competitiveness
- Falling debt values
- Menu costs
These costs can negatively impact consumers and businesses.
Who are the ‘winners’ in an inflationary environment?
- Employees in strong trade unions
- Owners of physical assets
- Borrowers
These groups can protect or benefit from inflation.
Who are the ‘losers’ in an inflationary environment?
- Non-unionised employees
- Owners of financial assets
- Savers and lenders
These groups typically see their purchasing power eroded by inflation.
What is deflation?
A sustained & continuous decrease in general prices of goods & services in the economy.
An example is Singapore facing deflation in December 2014 when CPI went into negative territory at -0.3%.
What is disinflation?
A reduction in the rate of inflation in the current year compared to the previous year.
For instance, Thailand’s inflation rate fell from 3% in 2015 to 2% in 2016.
What is core inflation?
A measure of inflation that excludes certain items that are price volatile.
For 2016, Singapore’s core inflation, excluding accommodation and private road transport costs, was at 0.5 to 1.5 percent.
What is stagflation?
An economy with rising prices coupled with high unemployment and slow economic growth.
The US could face stagflation in 2016 with slow growth, relatively high unemployment, and inflation occurring simultaneously.
What is hyperinflation?
Rapid increase in price level over a short period of time.
Zimbabwe experienced hyperinflation in 2008 when its price level doubled every day.
What does the short-run Phillips curve (SRPC) show?
An inverse relationship between inflation and unemployment.
It indicates a trade-off where policymakers decide the optimal point for the economy.
What does the long-run Phillips curve indicate?
In the long run, there is no trade-off between inflation and unemployment.
The economy returns to the natural rate of unemployment regardless of inflation.
What is the importance of price stability?
- Promotes economic growth and employment
- Maintains social stability
Price stability reduces the value of savings, typically affecting the poorest in society.
What economic factors are influencing Singapore’s growth in 2024?
- Rising consumer demand for retail
- Government’s spending aimed at economic growth
- Hosting international events to boost tourism
These factors contribute to Singapore maintaining a GDP forecast of 1-3%.
What major concerts attracted a global audience to Singapore?
Coldplay and Taylor Swift
What is the expected increase in tourism receipts for Singapore?
Expected to increase
What was Singapore’s GDP growth rate last year?
1.1%
What is the GDP forecast for Singapore in 2024?
1-3%
What significant risks did the Ministry of Trade and Industry warn about?
Significant downside risks in the global economy
What are two potential global conflicts that may impact Singapore’s economy?
- Israel-Hamas conflict
- War in Ukraine
What sectors supported Singapore’s growth over the past year?
- Domestic-oriented sectors
- Travel-related sectors
What did PM Lawrence Wong emphasize in the National Day Message 2024?
Need to pursue economic growth and upgrading through innovation and productivity
What technologies is the Singapore government investing in?
- Robotics
- Artificial intelligence
What trend was observed regarding retrenchments in Singapore in 2023?
More than doubled from the year before
What was the re-entry rate of retrenched workers in Singapore in Q1 2024?
Down
What was a major reason for structural unemployment in Singapore?
Accelerated use of technology replacing some workers
What type of support scheme is the government developing for retrenched workers?
Temporary financial support scheme
What is the aim of restructuring the curriculum in Singapore?
Prepare students for jobs that robots can’t do
How many new subjects will be incorporated into the secondary curriculum?
Seven new subjects
What was Singapore’s core inflation rate in August 2024?
2.7%
What factors are expected to affect core inflation in early 2024?
- Increases in GST rate
- Increases in bus and train fares
- Increases in electricity and gas tariffs
What are some upside risks to inflation mentioned?
- Fresh shocks to global energy
- Higher food commodity prices
- Persistent tightness in the domestic labour market
What impact does high inflation have on the average Singaporean consumer?
- Higher prices for public transport
- Higher electricity rates
- Strain on loan repayments
What are the two types of inflation mentioned?
- Demand-pull inflation
- Cost-push inflation
What is the relationship between demand-pull inflation and real GDP?
Demand-pull inflation is accompanied by a higher real GDP
What is the relationship between cost-push inflation and real GDP?
Cost-push inflation is accompanied by a lower real GDP
What is a key indicator of economic growth?
Inflation must be low and stable
What two factors significantly impact the economy?
- Unemployment
- Inflation
