ACJC Domestic Macro Tutorial Worksheet

1 ©ACJC Econs Dept/2024/Domestic Macroeconomic Problems Anglo-Chinese Junior College Department of Economics H2 Domestic Macroeconomic Aims & Problems TUTORIAL WORKSHEET 1 Section A: Discussion Questions • Question 1: Understanding economic growth • Question 2: Understanding unemployment • Question 3: Understanding inflation Section B: Case Studies • Case Study 1: The tale of BRICS (2019 ACJC Term Assessment) • Case Study 2: A Tale of the Two World’s Superpowers (2020 NYJC Prelims) Section C: Essay Questions • Essay Q1: Circular flow of income and impact of government spending on inclusive growth and unemployment • Essay Q2: • Essay Q3: Causes of negative inflation and importance of various macroeconomic aims Note to students: It is very important for your learning that you thoroughly prepare your answers before tutorials. Your tutors may separately assign you modules from the SLS to supplement your understanding of the topic.

2 ©ACJC Econs Dept/2024/Domestic Macroeconomic Problems Question 1: Understanding Economic Growth Extract 1: IMF lowers forecast for Singapore economy to 3.7% growth this year The Straits Times, July 22, 2022 SINGAPORE - The International Monetary Fund (IMF) has cut its economic growth forecast for Singapore, in line with its recent warning that it will downgrade its estimates for the global economy later this month. The IMF said Singapore’s economy will grow at 3.7 per cent this year (2022). The latest estimate is less than the forecast of 4 per cent growth the fund had made in May. The IMF said the pace of growth will be slower this year compared with the 7.6 per cent surge in 2021 as trade-related sectors may moderate amid supply constraints, while recovery in the hardest hit sectors - tourism and aviation-related, consumer-facing and construction - has only just begun. The IMF said growth in Singapore is being driven by pent -up demand as the economy reopens, amid the relaxation of most Covid -19 curbs on mobility. Singapore's skilful containment measures, effective vaccination campaign and decisive policy support helped the economy to recover impressively ." However, the fund warned: "The outlook is subject to significant uncertainty and risks are titled to the downside." Inflation has been driven up by rising domestic cost pressures, as well as external factors such as the war in Ukraine, which has pushed up commodity prices and tightened supply conditions. The IMF said the risks stem mostly from the Ukraine conflict and the related sanctions imposed on Russia, China's growth slowdown, and interest rate hikes in advanced economies to tame inflation. It also said that the threat of vaccine -resistant new Covid-19 variants continues to linger. With the recovery in domestic demand, the IMF said Singapore's current account surplus is expected to decline to 13.2 per cent of gross domestic product in 2022 from 18.1 per cent in 2021. Current account is the broadest measure of the health of a country's external sector and its ability to meet its foreign payment obligations. Over the next three to five years, Singapore’s GDP growth should converge to 2.5 per cent and inflation stabilise at 1.5 per cent. The fund's managing director, Ms Kristalina Georgieva, said in a blog post on July 13 that the IMF's World Economic Outlook update due on July 26 will cut the forecasts for global economic growth as fallout from Russia's invasion of Ukraine and pandemic-related shutdowns in China reverberate. "It is going to be a tough 2022, and possibly an even tougher 2023, with increased risk of recession," she wrote in the blog post. MAS managing director Ravi Menon said on Tuesday that a good scenario for Singapore is a mild and short -lived global technical recession: Two consecutive quarters of negative growth that tame inflation. Section A: Discussion Questions

3 ©ACJC Econs Dept/2024/Domestic Macroeconomic Problems Questions (a) Explain the difference between slow and negative economic growth. (b) With reference to the article above and the use of AD/AS framework, explain the possible reasons for the positive growth forecast for the year 2022. (c) Explain how the ‘risks’ mentioned in the article (Paragraph 4) may reduce the economic growth forecast in Singapore. Further Question With reference to the article above, identify the type of inflation experienced by Singapore and one possible factor that led to this.

4 ©ACJC Econs Dept/2024/Domestic Macroeconomic Problems Question 2: Understanding Unemployment Extract 2: Employment growth for Singapore residents slowed slightly in 2019, unemployment edged up: MOM The annual average unemployment rate for Singaporeans rose to 3.3 per cent, up from 3 per cent in 2018, according to preliminary data released by the Ministry of Manpower (MOM) on Thursday (Jan 30). Manpower Minister Josephine Teo said at a media briefing on Thursday that last year's unemployment rates "are a concern but they are not alarming". "We must remember the context of better -than-expected employment growth and the absence of a spike in retrenchments. When you put the three together, this suggests that the challenge is not primarily lack of job creation but possible job -skills mismatches," said Mrs Teo. Local employment growth was better than expected, given the economic headwinds and uncertainties, Mrs Teo noted. Employment of residents grew strongly in services industries such as community, social and personal services, professional services and information and communications, but contracted in industries such as manufacturing and wholesale trade. The rise in both employment and unemployment suggests that Singapore is operating in a "dual-speed employment market" where demand for workers in modern service sectors like infocomm technology and finance is stronger than in other sectors. "While jobs in these sectors are continually created and hiring patterns are not expected to deteriorate, there is a shortage of jobseekers that bring the technical skills necessary to help businesses achieve their digital transformation goals," he said. On the outbreak of COVID-19, Mrs Teo said that given its inevitable impact on the Singapore economy, the priority on the manpower front is to mitigate the fallout and support affected workers to preserve their livelihoods. "The outlook has become more uncertain. The COVID- 19 virus situation, however, will not last forever. We have to address immediate concerns but keep an eye on the future, so for the longer term, we will help businesses to transform and adapt," she said. National Trades Union Congress assistant secretary-general Patrick Tay said in a Facebook post that layoffs last year were mainly due to re -organisation, restructuring, and transformation alongside global trade and geo-political uncertainties. Source: The Straits Times, 31 Jan 2020 Questions (a) Explain the possible causes of higher unemployment in Singapore in the next five years. (b) Discuss the impact of higher unemployment on Singapore’s standard of living.

5 ©ACJC Econs Dept/2024/Domestic Macroeconomic Problems Question 3: Understanding Inflation Extract 3: Soaring food, energy prices send India inflation to 5-year high India’s annual retail inflation has accelerated to its highest level in more than five years, boosted by surging food and oil prices, increasing the likelihood of an extended pause in the central bank’s interest rate cuts. The pick-up in inflation to 7.35 percent from 2019 to 2020 adds to the challenges faced by Prime Minister Narendra Modi, who is trying to revive slowing economic growth. Retail food prices, which make up nearly half of the India’s inflation basket, increased 14.12 percent in December from a year earlier. Some vegetable prices, including prices of onions that are a staple in Indian cook