ACJC External Macro Issues Tutorial Worksheet

1 Anglo-Chinese Junior College Department of Economics H2 External Macroeconomic Issues TUTORIAL WORKSHEET 2 Section A: Discussion Questions • Question 1: Understanding exchange rate changes • Question 2: Understanding balance of payments Section B: Data Response Questions • Question 3: Japan posts record ¥20 Trillion Trade Deficit in 2022 Section C: Essay Questions • Question 4 • Question 5 • Question 6 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 Section A: Discussion Questions Question 1: Understanding exchange rate changes Different countries’ governments may choose to adopt different exchange rate regimes. For this question, we will assume that all three countries (UK, US and Malaysia) adopt a floating exchange rate regime. Event Explain the impact of the event on the country’s exchange rate A rise in domestic interest rates in UK, making them above the rates in many other countries. US reports that its trade deficit is the highest in recent years. Malaysia’s export price competitiveness improves Question 2: Understanding balance of payments With respect to Singapore’s balance of payment account, identify and explain which of the accounts would likely be affected by each of the following events. Events Account A rise in expenditure by tourists in Singapore An increase in import duties on cigarettes in Singapore Bread Talk Singapore sets up more franchise outlets in the Middle East

3 Malaysian ringgit depreciates against Singapore dollar A rise in foreign direct investment into Singapore from the Asian region The Federal Reserve announces lower domestic interest rates in the US Question 3: Japan posts record ¥20 Trillion Trade Deficit in 2022 Japan’s balance of trade for 2022 announced by the Ministry of Finance showed a deficit of ¥20.0 trillion. This far exceeds the ¥12.8 trillion deficit of 2014, marking the largest trade shortfall since comparative statistics were first available in 1979. Resource-poor Japan is dependent on imports for 94% of its primary energy supply. T he depreciating yen and soaring energy prices from Russia’s invasion of Ukraine have thus been cited as the significant reasons for the trade deficit. (a) Explain how “depreciating yen and soaring energy prices from Russia’s invasion of Ukraine” caused Japan’s trade deficit in 2022. [4] Figure 1: Japan’s balance of trade with the rest of the world (b) With reference to Figure 1, describe the change in Japan’s overall balance of trade during the period of 2008-2014. [2] Section B: Data Response Questions

4 Figure 2: Japan’s balance of trade with the United States (c) Using Figure