Revision and Consolidation

1. Revision and Consolidation Macroeconomics Globalisation and external economic shocks

2. Globalisation Economies more closely integrated with each other Tension / inter-relationship between developed & developing countries Essays

3. Economies more closely integrated with each other Vulnerable to external shocks Oil prices Downturn in world economy • Essential i/p, inelastic demand • Higher COP, higher M spending • Reduce X demand • Fall in investment

4. Tension / inter-relationship between developed & developing countries Developed countries • Loss of CA to developing countries particularly in low-end, labour intensive manufacturing / services • Firms relocate or outsource part of their operations • Consumers, both at home and abroad, switch to goods from the developing countries • Falling I & net exports • Need for economic restructuring to move up value chain (SR pain, LR gain) • Effect on 5 macroeconomic goals?

5. Tension / inter-relationship between developed & developing countries Developed countries • Low production cost in the developing countries • When developed countries outsource or import from the developing countries, they too enjoy the low prices • Keeps down inflation and raises real incomes As economic growth rate in the developing countries pick up pace, their rising incomes allow them to purchase more g&s, including imports  Developing countries increasingly become important export destinations for goods from developed countries.

6. Tension / inter-relationship between developed & developing countries Developing countries • Enjoy comparative advantage in low-end, labour intensive manufacturing / services • Destination of MNCs relocation / outsourcing • Rising I & net exports • Effects on 5 macroeconomic goals?

7. SAJC 2006 “In 2004, higher global oil prices pushed up inflation in developed countries, which should result in a moderation of economic growth in 2005.”Adapted from Economic Survey of Singapore 2004, Ministry of Trade and Industrya. Explain how rising global oil prices are likely to affect the external economy of Singapore. (10) BOP & ER Imports Sg: oil importer ↑ oil px with inelastic dd  TEM ___ Exports Rising oil prices  ___ export prices Rising oil prices  world ec growth ___ Together, effect on TRX ____ Effects on C/A and K/A? Overall BOP & ER? Assumption about px & Y elasticity of dd for X

8. SAJC 2006b. Discuss possible measures that Singapore can adopt to alleviate the adverse effects of rising global oil prices. (15) • Cost-push inflation • ____ NY, ___ UN • _____ BOP & ____ ER • 3 policies + evaluation • Limitations • Possible trade-offs in goals • Wage freeze / Px ceiling • Institute price controls to limit the rise in COP • Ss-side policies • Productivity improvement to reduce unit COP to offset the effects of higher oil px • ER policy • Allow S$ to appreciate against the US$

9. SAJC 2006b. Discuss possible measures that Singapore can adopt to alleviate the adverse effects of rising global oil prices. (15) • Cost-push inflation • ____ NY, ___ UN • _____ BOP & ____ ER • Root cause of the problems • Higher oil prices • Long term policy • Seek to reduce reliance on oil through • development of new, energy-efficient technology • development of alternative energy sources

10. TJC 2006“As global stock market topple the Japanese and USA economies sputter and financial seams begin to pop in major emerging markets, anxiety is bubbling into financial markets that the world may face its first global recession in a quarter century”a. Discuss the possible impact of a global recession on Singapore. (8) • Reduce X demand • Fall in investment • Evaluation • How serious / significant are these effects likely to be? Economic effects 5 macroeconomic goals “imported recession”

11. TJC 2006b. Examine the policy options that the government could adopt in dealing with these difficulties. (17) • ____ NY, ___ UN, deflation • _____ BOP & ____ ER • 3/4 policies + evaluation • How policies deal with “these difficulties” • Limitations / effectiveness • Possible trade-offs in goals Root cause of the problems Global recession  falling AD • Appropriate policies • Seek to stimulate AD • Expansionary F/P • M/P: S$ ER to depreciate • Wage freeze, trade restrictions

12. TJC 2006a. Discuss the possible impact of a global recession on Singapore. (8)b. Examine the policy options that the government could adopt in dealing with these difficulties. (17) Nov 2005Discuss the possible impact of a world-wide recession on Singapore and the policy options that the government could adopt to reduce the most harmful effects of this impact. [25] • Identify which of the effects are most harmful • Provide justification • Then prescribe policies to solve these problems

13. Nov 2005Discuss the possible impact of a world-wide recession on Singapore and the policy options that the government could adopt to reduce the most harmful effects of this impact. [25] • Possible Effects • Internal economy: ____ NY, ___ UN, possible deflation • External economy: _____ BOP & ____ ER

14. Nov 2005Discuss the possible impact of a world-wide recession on Singapore and the policy options that the government could adopt to reduce the most harmful effects of this impact. [25] • Comparing the internal & external effects • Internal effects more severe & more harmful • WW recession  sharp fall in AD  contractionary effect on NY and employment • (reason: external dd makes up 2/3 of our AD) • should deflation set in, economy could be trapped in a deflationary cycle (Japan’s experience) • Falling SOL & rising hardships

15. Nov 2005Discuss the possible impact of a world-wide recession on Singapore and the policy options that the government could adopt to reduce the most harmful effects of this impact. [25] • Comparing the internal & external effects • External effects less severe & less harmful • Given high M content of X, the fall in X dd would lead to a fall in dd for imported raw materials & component parts  may have little effect on C/A of the BOP • Even if BOP actually does worsen, it should not lead to serious problems in the SR due to the availability of reserves. • With a managed float ER system, the ER can also be allowed to adjust to reduce the deficit

16. JJC 2006a. Analyse the impact of globalisation on the components of aggregate demand in an economy. (12) • Which group of countries? • Emerging economies - China & India? • US & European union? • Australia? • Analyse • Is the effect significant or weak? • Is there a possibility that an AD component may both increase & decrease? • Choose 1 country to explain in greater detail (as a case study) the effect on: • Consumption ___ • Investment ___ • Govt expenditure ___ • Net export ____

17. JJC 2006b. Discuss the appropriate policy measures that the government may undertake in the face of such challenges. (13) Depending on the choice of country in (a), the challenges & therefore policy options vary. Most well-documented: effect of the emergence of China & India on the economies of US & EU  may consider using this as the case study for part (a) so that there is more room for analysis in part (b) • 3 policies with evaluation • ER policy • Protectionism • Supply-side policies

18. SAJC 2006“Driven by surging investments and exports, China’s economy grew by 9.9% in 2005.”Using economic analysis, account for the rise of China’s economy and discuss its impact on Singapore. (25) • 5 macroeconomic goals • Threat • Investment, net X • Opportunity • Potential X market • Lower prices & COP Comparative advantage Govt policies