- 2 years ago
- Introduction The multiplier effect is the effect of an increase in autonomous expenditure resulting in a larger increase in national output and hence national income. The multiplier is the number of times by which national output and hence national income rises due to an increase in autonomous expenditure. Many students think that a small multiplier is undesirable for the economy. This economic misconception will be discussed in greater detail in economics tuition. Exposition An increase in autonomous expenditure will lead to an increase in aggregate demand. When aggregate demand rises, firms will employ more factor inputs from households to increase production and hence will pay households more factor income. When households’ income rises, they will increase consumption expenditure. Due to the increase in consumption expenditure and hence aggregate demand, firms will employ even more factor inputs from households to further increase production and hence will pay households even more factor income. When this happens, households’ income will rise further which will induce them to further increase consumption expenditure. Therefore, the initial increase in aggregate demand due [...]
Author archives: Edmund Quek
- 3 years ago
- Due to the upcoming Chinese New Year which falls on 10 and 11 February 2024, the lessons on the two days will be cancelled. The make-up lessons will be conducted on 13 February 2024 lessons at the same timings. Economics Tuition @ Economics Cafe Principal Economics Tutor: Mr. Edmund Quek
- 3 years ago
- Introduction Tariffs are taxes imposed on imports. Many students think that an increase in tariffs will lead to an increase in import expenditure if the demand for imports is price inelastic. This economic misconception will be explained in economics tuition in greater detail. Exposition A persistent balance of payments deficit may lead to problems such as high imported inflation, lower national output and hence national income, higher unemployment and rising public debt, depending on the exchange rate system. Therefore, in the face of a persistent balance of payments deficit, the government may increase tariffs to correct the deficit. If the government increases tariffs, the prices of imports will rise. When this happens, households and firms will switch from imports to domestic goods which will lead to a decrease in import expenditure resulting in an improvement in the current account and hence the balance of payments. Many students think that if the demand for imports is price inelastic, an increase in the price will lead to a smaller proportionate decrease in the quantity demanded. If this happens, import expenditure will rise which will worsen the current account an[...]
- 3 years ago
- The exchange rate of a currency is the rate at which the currency can be exchanged for another currency. It is also defined as the price of the currency in terms of another currency. This is known as the nominal exchange rate. For instance, the nominal exchange rate of the Singapore dollar against the Malaysian ringgit is about RM2.50/S$ which means that 2.5 Malaysian ringgits are required to exchange for or purchase 1 Singapore dollar. It is important to note that the exchange rate of a currency is expressed as the amount of foreign currency that is required to purchase one unit of the currency. Unlike the nominal exchange rate of a currency which refers to the amount of foreign currency that is required to exchange for or purchase one unit of the currency, the real exchange rate of a currency refers to the amount of foreign goods and services that is required to exchange for or purchase one unit of domestic goods and services. Mathematically, it can be expressed as N[...]
- 3 years ago
- The answer is not necessarily. The Marshall-Lerner condition states that for a devaluation of domestic currency to improve the balance of payments, the sum of the price elasticities of demand for exports and imports must be greater than one. A fall in the exchange rate will increase the price of imports in domestic currency which will lead to a decrease in the quantity demanded. If the demand for imports is price elastic, which means that the increase in the price will lead to a larger proportionate decrease in the quantity demanded, import expenditure will fall which will improve the balance of trade. If the demand for imports is price inelastic, which means that the increase in the price will lead to a smaller proportionate decrease in the quantity demanded, import expenditure will rise. However, this may not worsen the balance of trade as export revenue will also rise. A fall in the exchange rate will decrease the price of exports in foreign currency which will lead to an increase in the quantity demanded. As the price of exports in domestic currency will not be affected by a fall in the exchange rate, an increase in the quantity demanded will lead to an increase in export reven[...]
- 3 years ago
- The reason is that many students do not fully understand the difference between current prices and base-year prices in the balance of payments and aggregate demand. The Marshall-Lerner condition states that for a devaluation of domestic currency to improve the balance of payments, the sum of the price elasticities of demand for exports and imports must be greater than one. A fall in the exchange rate will increase the price of imports in domestic currency which will lead to a decrease in the quantity demanded. If the demand for imports is price elastic, which means that the increase in the price will lead to a larger proportionate decrease in the quantity demanded, import expenditure will fall which will improve the balance of trade. If the demand for imports is price inelastic, which means that the increase in the price will lead to a smaller proportionate decrease in the quantity demanded, import expenditure will rise. However, this may not worsen the balance of trade as export revenue will also rise. A fall in the exchange rate will decrease the price of exports in foreign currency which will lead to an increase in the quantity demanded. As the price of exports in domestic cur[...]
- 3 years ago
- Fact 1 The US dollar has been depreciating against the major currencies in the world over the last few decades. This is mainly due to the rising imports in the US and hence the increasing supply of US dollars in the forex market. Fact 2 Australia is well endowed with natural resources such as minerals, metals and fuels. Therefore, the exchange rate of the Australian dollar depends to a large extent on the exports of these resources. Note: The two facts above will be explained in greater detail in economics tuition. Prediction Suppose you predict that the world economy will move into a recession soon. Question How can you make use of these facts and prediction to increase your wealth? Answer Well, you can convert your savings in Singapore dollars to US dollars. If the US economy moves into a recession, the imports will fall which will lead to a decrease in the demand for foreign currencies. When this happens, the supply of US dollars will fall which will lead to a rise in the exchange rate. These will lead to an increase in your wealth (which will be in US dollars) in terms of Singapore dollars. The story does not end here. If the US economy moves into a recession, so will the w[...]
- 3 years ago
- As everyone has been working very hard over the past year, we all deserve a year-end break. Therefore, there will be no lessons in the last two weeks of December 2023. Lessons will resume in the first week of January 2024. Economics Tuition @ Economics Cafe Principal Economics Tutor: Mr. Edmund Quek
- 3 years ago
- Public goods will not be produced in the absence of government intervention. Public goods are goods that are non-excludable and non-rivalrous. A good is non-excludable when it is impossible or prohibitively costly to prevent non-payers from consuming the good once it has been produced. A good is non-rivalrous when the consumption of the good by a consumer will not reduce the amount available to other consumers. Examples of public goods include national defence and street lighting. As public goods are non-excludable, consumers can consume them without paying for them. Therefore, consumers will want to consume public goods without contributing to their production which is known as the free-rider problem. As consumers have no incentive to pay for public goods, private firms which are profit-oriented have no incentive to produce them. Therefore, in the absence of government intervention, public goods will not be produced due to the characteristic of non-excludability. Many students think that the characteristic of non-rivalry of public goods leads to non-provision in the absence of government intervention. Mr. Edmund Quek will discuss this economic misconception in econo[...]
- 4 years ago
- Due to year-end festivities, and everyone’s well-deserved break, there will be no lessons this week and next week. Lessons will resume in the first week of 2023. New Class Schedule Friday 5pm-7pm (Starting on 6 January 2023) Saturday 1.45pm-3.45pm (Starting on 7 January 2023) Sunday 1.45pm-3.45pm (Starting on 8 January 2023) Note: The Tuesday Class will be moved to Friday with effect from the first week of 2023. There will be new classes opening up in March. Economics Tuition @ Economics Cafe Principal Economics Tutor: Mr. Edmund Quek
- 4 years ago
- Introduction A budget deficit occurs when government expenditure exceeds government revenue. Public debt refers to the amount of money that the government owes. It is also known as national debt, sovereign debt and government debt. Many students think that a decrease in budget deficit will lead to a fall in public debt. There will be a discussion on this economic misconception in economics tuition at Economics Cafe. Exposition When the government runs a budget deficit, it will borrow by issuing securities (i.e. bonds and bills) to finance the deficit, assuming it does not have sufficient reserves. When this happens, the public debt will rise. A decrease in budget deficit may occur due to a decrease in government expenditure, an increase in government revenue, or both. Many students think that a decrease in budget deficit will lead to a fall in public debt. This is erroneous. When the budget deficit falls, the public debt will not fall. Rather, a decrease in budget deficit will lead to a slower rise in the public debt. This is because when the government runs a smaller budget deficit, what it means basically is that it will borrow a smaller amount of money to finance[...]
- 4 years ago
- The Junior College 1 classes for 2023 will commence in the second week of November. Students can attend the first lesson on Saturday (12/11/2022, 10.45am-12-45pm) or on Sunday (13/11/2022, 10.45am-12.45pm). For more information, please contact us at our email or phone. Economics Tuition @ Economics Cafe Principal Economics Tutor: Mr. Edmund Quek