- (a) Explain why Singapore chooses to use the exchange rate rather than interest rates as the policy instrument of its monetary policy. [10] Introduction Monetary policy is a demand-side policy that is used to control the money supply and interest rates to influence aggregate demand. Monetary policy can be used to increase economic growth, decrease unemployment and reduce inflation. Aggregate demand is the total demand for the goods and services produced in the economy over a period of time and is comprised of consumption expenditure, investment expenditure, government expenditure on goods and services and net exports. To increase economic growth or decrease unemployment in an economy where interbank rates are lower than the bank rate and hence banks borrow from each other, such as the United States and Japan, the central bank can increase the money supply by conducting an open market purchase. When the money supply increases, the amount of reserves in the banking system will rise. When this happens, interbank rates will fall which will lead to a fall in the level of interest rates in the economy. For example, the Federal Reserve increased the money supply to lower the f[...]
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- Discuss whether a shift from direct taxes to indirect taxes would improve the current and future standards of living in Singapore. [25] Introduction A direct tax is a tax imposed on income or wealth. An indirect tax is a tax imposed on a good or service. The standard of living refers to the material and non-material welfare of the people. The effect of a shift from direct taxes to indirect taxes in Singapore on the current and future standards of living can be discussed with reference to aggregate demand, aggregate supply, the amount of goods and services available for consumption, the mental health of workers, the size of the multiplier, the size of the population, income equity, negative externalities and the amount of leisure time. Body A shift from direct taxes to indirect taxes in Singapore may lead to a rise in the current standard of living. Aggregate demand is the total demand for the goods and services produced in the economy over a period of time and is comprised of consumption expenditure, investment expenditure, government expenditure on goods and services and net exports. If the Singapore government decreases personal income tax and corporate income tax, disposable inc[...]
- Discuss whether austerity measures in the European Union would adversely affect the Singapore economy. [25] Introduction Austerity measures refer to the measures used by the government to reduce a budget deficit which include spending cuts and tax increases. The effects of austerity measures in the European Union on the Singapore economy can be discussed in terms of the effects on the balance of payments, national output and hence national income, unemployment and inflation. Body Austerity measures in the European Union may lead to a deterioration in the balance of payments of Singapore. The balance of payments is a record of all the transactions between the residents of the economy and the rest of the world over a period of time and is made up of the current account and the capital and financial account. Austerity measures in the European Union may include an increase in direct taxes such as personal income tax and corporate income tax. If this happens, disposable income will fall which will lead to a decrease in consumption expenditure. Even in the absence of an increase in direct taxes, austerity measures in the European Union will still lead to a fall in disposable income res[...]
- (a) Explain why the government subsidises education. [10] (b) Discuss whether a reduction in the subsidy on education is justified. [15] Introduction (a) The question can be discussed with reference to the concepts of allocative inefficiency and income inequity. Body The government subsidises education to address the problem of allocative inefficiency. Allocative efficiency is achieved when it is impossible to change the allocation of resources in the economy in a way that will increase the welfare of society. This occurs when marginal social benefit (MSB) is equal to marginal social cost (MSC) where MSB is the sum of marginal private benefit (MPB) and marginal external benefit (MEB) and MSC is the sum of marginal private cost (MPC) and marginal external cost (MEC). External costs and benefits, or externalities, are costs and benefits of consumption or production experienced by society other than the producers or the consumers. The private costs of education are the costs of production incurred by firms such as the costs of materials and labour. These costs are passed on to consumers in the form of a positive price. Therefore, from consumers’ perspective, the MP[...]
- Discuss whether a shift from reliance on foreign workers to improving labour productivity in Singapore would lead to an increase in international competitiveness. [25] Introduction Labour productivity refers to output per hour of labour. The question on whether a shift from reliance on foreign workers to improving labour productivity in Singapore would lead to an increase in international competitiveness can be discussed with reference to the effectiveness of the policy shift, exchange rate policy and trade policy for increasing international competitiveness in terms of the price of exports, the quality of exports and the ability to attract foreign direct investments. Body A shift from reliance on foreign workers to improving labour productivity in Singapore may lead to an increase in aggregate supply resulting in an increase in international competitiveness. Aggregate supply is the total supply of goods and services in the economy over a period of time and is determined by the production capacity and the cost of production in the economy. When labour productivity in Singapore rises, firms will need a smaller amount of labour to produce any given amount of output. Therefore, the [...]
- Discuss whether the concepts of elasticity of demand are useful to the government for discouraging the use of private cars. [25] Introduction The elasticity of demand for a good is a measure of the degree of responsiveness of the quantity demanded or the demand to a change in a determinant of demand, ceteris paribus. There are three concepts of elasticity of demand each relating to one of the determinants of demand: price elasticity of demand (PED), income elasticity of demand (YED) and cross elasticity of demand (XED). The usefulness of the concepts of elasticity of demand to the government for discouraging the use of private cars can be discussed with reference to PED, XED and YED. Body The concept of PED may be useful to the government for discouraging the use of private cars. The PED for a good is a measure of the degree of responsiveness of the quantity demanded to a change in the price, ceteris paribus. PED can be expressed mathematically as % Δ Quantity Demanded PED = -------------------------------------- % Δ Price The PED for a good is negative due to the law of demand and the common practice among economists i[...]
- (a) Compare the characteristics of the market structures of monopolistic competition and oligopoly. [10] (b) Discuss whether firms in a highly competitive market are more vulnerable than firms in a less competitive market in a recession. [15] Introduction (a) Market structure refers to the characteristics of a market such as the number of firms, the nature of their products, the availability of knowledge and the extent of barriers to entry which affect the behaviour of the firms in the market. The market structures of monopolistic competition (MPC) and oligopoly can be compared in terms of the number of firms, the extent of barriers to entry, the presence or absence of strategic interdependence, the nature of their products and the availability of knowledge. Body MPC and oligopoly differ in terms of the number of firms. MPC is a market structure where there are a large number of small firms each with a small market share. An example of MPC is the restaurant market. Due to the large number of firms in the market and hence the large number of substitutes, the demand for the good of an MPC firm is likely to be price elastic. Therefore, an MPC firm[...]
- (a) Explain whether the demand for private cars is elastic or inelastic in Singapore with respect to price and income. [10](b) Discuss the effects of a sharp rise in the prices of Certificates of Entitlement in Singapore on expenditure by consumers on different types of cars. [15] Introduction a) The price elasticity of demand (PED) for a good is a measure of the degree of responsiveness of the quantity demanded to a change in the price, ceteris paribus. The income elasticity of demand (YED) for a good is a measure of the degree of responsiveness of the demand to a change in income, ceteris paribus. Body The demand for private cars is likely to be price elastic in Singapore. PED can be expressed mathematically as % Δ Quantity DemandedPED = -------------------------------------- % Δ Price The PED for a good is negative due to the law of demand and the common practice among economists is to omit the negative sign. If the PED for a good is greater than one, such as in the case of luxury watches, the demand is price elastic which means that a change in the price will lead to a larger percentage change in the quantity demanded. If the PED for a good is less tha[...]
- (a) Explain how the different characteristics of the market structures of monopolistic competition and oligopoly affect pricing and output decisions. [10] (b) Discuss whether the behaviour of oligopolistic firms is consistent with the objective of profit maximisation. [15] Introduction (a) Market structure refers to the characteristics of a market such as the number of firms, the nature of their products, the availability of knowledge and the extent of barriers to entry which affect the behaviour of the firms in the market. The market structures of monopolistic competition (MPC) and oligopoly differ in terms of the number of firms, the extent of barriers to entry and the presence or absence of strategic interdependence which affect pricing and output decisions. Body A firm will maximise profit when it produces the output level where marginal cost (MC) is equal to marginal revenue (MR). Diagram In the above diagram, profit is maximised at Q0 where MC is equal to MR. If the firm increases output from Q0, both total revenue and total cost will rise. However, at an output level higher than Q0, such as Q1, MC is higher than MR. Therefore, the inc[...]
- To obtain the marks required to achieve a good grade, you need to know what the markers look for and show them in your answers. The following mark scheme will give you an idea of what the markers look for when marking and grading economics essays. As you will see, it all boils down to the five core thinking skills in economics tuition of knowledge, comprehension, application, analysis and synthesis, and evaluation. Although the following mark scheme is for a full-length 25-mark essay question, the scales and criteria also apply to a two-part essay question. Typically, a two-part essay question is split into Part (a) that carries 10 marks and Part (b) that carries 15 marks. Some two-part essay questions, however, are split into Part (a) that carries 12 marks and Part (b) that carries 13 marks. Full-length 25-mark Essay Question An answer to a full-length 25-mark essay question will be marked in the following way. Knowledge, Comprehension, Application, Analysis & Synthesis Level 1 (Lower) 1-5 marks is mostly irrelevant has only a few valid points Level 1 (Higher) 6-9 marks shows some knowledge of the question does not indicate that [...]
- This question will be discussed in the ninth week of term 3 (JC2) in economics tuition. Discuss whether increasing labour productivity in Singapore would be desirable for the economy. [25] Answer Introduction Labour productivity refers to output per hour of labour. The question on whether increasing labour productivity in Singapore would be desirable for the economy can be discussed in terms of the effects on the balance of payments, national output and hence national income, unemployment, inflation and income equity. Increase in National Output/National Income Increasing labour productivity in Singapore will lead to an increase in aggregate supply resulting in an increase in national output and hence national income. Aggregate supply is the total supply of goods and services in the economy over a period of time and is determined by the production capacity and the cost of production in the economy. When labour productivity in Singapore rises, firms will need a smaller amount of labour to produce any given amount of output. Therefore, the cost of production in the economy will fall. Furthermore, to increase labour productivity in the economy, the government may increase the skills[...]
- This question will be discussed in the eighth week of term 3 (JC2) in economics tuition. Discuss whether globalisation would benefit firms and households. [25] Answer Introduction Globalisation refers to the increased integration of economies through an increase in flows of goods and services, capital and labour across international borders. The effects of globalisation on firms and households can be discussed in terms of the effects on the profits of firms, the incomes of households and the prices of goods and services. Increase in Profits: Revenues Globalisation may increase the profits of firms through increasing their revenues. The production of low value-added goods such as disk drives requires low-skilled labour. Due to their larger amounts of low-skilled labour, less developed economies (LDEs) such as China have a comparative advantage over developed economies (DEs) such as the United States in producing low value-added goods. Therefore, through the increase in international trade, globalisation will lead to an increase in the demand for low value-added goods produced in LDEs. When this happens, the revenues of firms that produce low value-added goods will increase whi[...]