macroeconomics - 4 macro goals

Question 1

Name the 4 macroeconomic goals.

Answer 1

economic growth, low unemployment rate, price stability, balance of payment (BOP) equlibrium

Question 2

Name the 4 types of economic growth.

Answer 2

actual & potential EG

inclusive & sustainable EG

Question 3

Define inclusive economic growth.

Answer 3

rate of economic growth that is broad-based and provides employment opportunities to the majority of a population and does not worse income disparity between higher and lower-income groups

Question 4

How does Singapore tackle the problem of uninclusive economic growth? Name two ways.

Answer 4

1. progressive taxes
   - Singapore taxes the higher income groups a larger percentage of their income as compared to those in a lower income bracket
2. income redistribution (transfers)
   - lower-income individuals tend to have bursaries and grants that are provided by the government to help lighten financial worry of low-income individuals
   - e.g. Edusave Merit Bursary

Question 5

State and explain the change in demand and supply of high-skilled labour in Singapore today.

Answer 5

demand: increase
- increasing number of MNCs are coming into Singapore demanding high-skilled labour

supply: decrease
- Singaporeans going abroad to work

Question 6

State and explain the change in demand and supply of low-skilled labour in Singapore today.

Answer 6

demand: decrease
- increasing implementation of automation (e.g. kiosks replacing human cashiers) , eliminates the need for low-skilled labour

supply: decrease
- more Singaporeans today are educated and hence, can hold down higher-skilled jobs

Question 7

Define sustainable economic growth.

Answer 7

rate of economic growth that meets the need of the present economy without creating economic problems for future generations including environmental degradation and depletion of resources

Question 8

Name the 2 types of sustainable economic growth and define them.

Answer 8

fiscal sustainability: the ability of a government to maintain its current spending, tax, and other fiscal policies over the long term without resorting to excessive borrowing or defaulting on its debt obligations, while still supporting a stable rate of economic growth.

environmental sustainability: refers to managing natural resources and ecosystems such that there will be no significant degradation of the environment, such as excessive greenhouse gas emissions by factories and depletion of raw materials that will harm future generations, while still supporting long-term economic growth)

Question 9

Name and explain two ways in which Singapore ensures sustainable economic growth.

Answer 9

1. prudent fiscal policy
   - ensures that Singapore’s budget position stays at surplus
2. carbon tax
   - tax on per UNIT output of carbon
   - to disincentivise firms from generating excessive carbon emissions

• pros: keeps carbon emissions low
• cons: carbon footprint is left in SG even if firms relocate to other countries (e.g. relocate to Indonesia –> SG still affected by pollution due to it being in the vicinity of Indonesia)
• cons: firms are disincentivised from production and innovation as carbon taxes pushes them to limit output quantity and quality

Question 10

Define full employment/low unemployment rate.

Answer 10

refers to a situation in which all available resources in an economy are being used, and there is no significant surplus of unemployed workers

Question 11

Define unemployment.

Answer 11

refers to a situation in which individuals are willing and able to work, actively seeking jobs but do not have a job

Question 12

Define labour force.

Answer 12

total number of people in the workforce aged 15 and above, who are willing and able to work, including both employed and unemployed persons

Question 13

Name the 2 types of unemployment.

Answer 13

demand-deficient unemployment & structural unemployment

Question 14

demand-deficient unemployment

Answer 14

a.k.a cyclical unemployment

decrease in ad –> firms experience an unplanned accumulation in inventory and step down production, hiring fewer FOPS such as labour, which is a derived-demand of production

Question 15

structural unemployment
+
name two causes

Answer 15

mismatch of skills between the workforce and jobs available in the economy, resulting in individuals having no jobs

causes: technological advancement & changes in external economy

Question 16

How does technological advancement lead to structural unemployment?

Answer 16

when new technologies change the demand for certain skills, rendering some jobs obsolete and creating a mismatch between the skills workers have and the skills employers need.

advancements in technology, such as automation, artificial intelligence, and robotics, can replace manual or routine jobs, especially in industries like manufacturing, retail, and even services. Workers in these sectors may lose their jobs if machines or algorithms can perform their tasks more efficiently and cost-effectively.

• e.g. fast-food chains and supermarkets: past VS present - usage of human workers VS automated kiosks & check-out machines

Question 17

How do changes in the external economy lead to structural unemployment?

Answer 17

global economic shifts alter the demand for goods, services, or industries in a way that causes certain jobs or skills to become obsolete.

-e.g. COVID-19: no demand for aviation services, air stewards and stewardesses RETRENCHED

-e.g. 2: shifts in global consumer patterns and changes in supply chains
(SG’s focus shifting from manufacturing sector to tech sector)

sunset VS sunrise industry

Question 18

eval point: underemployment. define and explain.

Answer 18

refers to a situation where individuals are employed, but their jobs do not fully utilise their skills, education, or experience

i.e. despite a low unemployment rate, high-skilled workers may be doing low-skilled jobs, hence commanding a lower salary, thus lower SOL

Question 19

Explain the impact of high unemployment rates on standards of living (SOL) and economy.

Answer 19

1. high unemployment/retrenchment rates –> decreased disposable income & purchasing power (as more individuals will have no active income) –> decrease in w&a to consumer g&s –> decrease in mSOL

ALSO decrease in w&a to consumer better-quality healthcare and education –> decrease in nmSOL

decrease in C –> decrease in AD –> negatively affects actual EG

2. high unemployment/retrenchment rates –> high homelessness & crime rates –> decreased safety and security –> decrease nmSOL
3. high unemployment/retrenchment rates –> increased rates of depression and anxiety (due to loss of source of income and livelihoods) –> social unrest –> nmSOL
4. high unemployment/retrenchment rates –> decrease in tax revenue (for govt) –> decrease in ability to spend on govt projects such as healthcare and educational facilities for citizens –> decrease in nmSOL

Question 20

Define price stability.

Answer 20

low and stable inflation rates

Question 21

Name a key economic indicator used to determine price stability and state how it is used in a formula.

Answer 21

CPI / Consumer Price Index

inflation rate current year (%) = (cpi current year - cpi previous year) / cpi previous year X 100%

Question 22

Define inflation and state the 2 types of inflation.

Answer 22

sustained increase in GPL

cost-push inflation & demand-pull inflation

Question 23

Define cost-push inflation and state 2 causes.

Answer 23

form of inflation where GPLs in the economy rise due to rising COPs

1. imported inflation (DUE TO supply shocks/inflation in foreign countries)
2. wage-push inflation

Question 24

Explain cost-push inflation and its effect(s) on the economy.

Answer 24

When imported FOPs/wages increase in cost, firms are less w&a to produce g&s, thus resulting in a decrease in SRAS. As such, there will be a shortage of g&s at the existing AD level, exerting upward pressure on GPLs, resulting in prices increasing from P0 to P1. Consequently, due to the fall in SRAS, RNY also falls from Y0 to Y1.

Question 25

When does wage-push inflation occur and how does wage-push inflation result in higher GPLs?

Answer 25

Wage-push inflation occurs when workers demand for higher wages through trade unions, staging protests to increase wages. An increase in wages thus leads to an increase in COP, as labour is a derived-demand of production. Firms will then pass on the higher COP onto the consumer in the form of higher prices of g&s, thus leading to higher GPLs. (spiral/cycle of inflation repeats)

(increased wages –> increased COP –> firm pass it on to consumers –> higher gpl)

Question 26

Why is Singapore particularly susceptible to cost-push inflation?

Answer 26

• lack raw materials
• import-reliant
• small economy (lacks natural resources & FOP like labour due to small population size)
• open economy (engages in extensive trade and hence, vulnerable to external shocks and imported inflation)

Question 27

Define demand-pull inflation.

Answer 27

demand-pull inflation: a situation in which there is excessive demand in the economy which results in a depletion of FOPs, which in turn results in an overheating economy and increased GPLs

Question 28

Explain how demand-pull inflation occurs.

Answer 28

When there is an extensive increase in AD, the economy runs into full employment level and faces a shortage of scarce FOPs. As such, firms undergo a bidding process as they bid up the prices of scarce FOPs, resulting in factor input prices increasing and translating to higher GPLs, as seen from P0 to P1. The economy hence suffers from demand-pull inflation.

Question 29

Explain the drawbacks of inflation on the economy.

Answer 29

1. inflation –> erodes the real value of money –> decreased purchasing power –> decrease in w&a to consumer g&s –> decrease in consumption expd –> decrease in AD

decreased PP –> decreased w&a to consumer g&s –> decreased mSOL bc citizens enjoy fewer g&s + decreased mSOL bc citizens less w&a to purchase better quality healthcare and education

2. inflation –> firms less able to predict profit margin –> less w& a to invest –> decrease in investment expd –> decrease in AD

Question 30

Give an instance of demand-pull inflation in Singapore’s context.

Answer 30

context: Singapore’s housing market

Due to an influx of wealthy foreigners entering the local real estate market and purchasing multi-million assets including good-class bungalows, there is an increase in domestic demand for properties, which thus drives up prices in the local housing market. This causes the real estate market to overheat, which necessitates the cooling effect achieved through cooling measures

Question 31

Define balance of trade

Answer 31

BOT is a record of the difference between the monetary value of a country’s imports and exports

BOT = TRx - TEm

Question 32

What are some sources of export revenue in Singapore?

Answer 32

professional services such as law and consultancy services, technological sector, healthcare sector

Question 33

What are some sources of import expenditure in Singapore?

Answer 33

raw materials, cars (Japan/Korea/Italy/Germany)

Question 34

What are the 2 types of BOT positions?

Answer 34

1. trade surplus (X>M)
2. trade deficit (X<M)

Question 35

How does BOT surplus benefit an economy?

Answer 35

stronger EG, accumulation of foreign reserves (FOREX), improves investor confidence

Question 36

How does BOT surplus result in strong economic growth in an economy?

Answer 36

BOT surplus –> increasing demand for exported g&s + corresponds to a positive (X-M) value –> hence AD value, hence RNY, which suggests that economy is growing

MOREOVER,
BOT surplus –> increase in labour employed to produce g&s to export –> opens up more job opportunities in export-oriented industries –> decrease in demand-deficient UN

Question 37

How does BOT surplus benefit an economy in terms of foreign reserves?

Answer 37

As a country sells more exports to its trading partners, it will receive payment in foreign currencies. Therefore, as tthe total revenue of exports increases, there will be an accumulation of foreign reserves within the exporting country, which enables a country to carry out exchange rate policies

Question 38

How does BOT surplus improve investor confidence?

Answer 38

A BOT surplus suggests that an economy’s total export revenue exceeds its total import expenditure, which means that the economy is growing in RNY and that there is a healthy and increasing demand for locally-produced goods and services. Therefore, investors are more likely to be more confident in investing in such an economy as it offers opportunities for profitable investments.

Question 39

Name the 2 types of export competitiveness.

Answer 39

quality competitiveness (stems from better FOPs), price competitiveness

Question 40

Name the 2 types of balances.

Answer 40

internal balance (govt budget), external balance (BOT)