ACJC H2 Prelim 2024 P1 CSQ2 Solutions

Question2:Thechallengesinapost-pandemicworld Table1:SelectedKeyEconomicIndicatorsforUnitedStates,2019-2023 2019 2020 2021 2022 2023 RealEffectiveExchangeRateIndex(USD) 116.4 118 115.6 126.6 127.3 Netcurrentaccount(inUSDbillions) -441.7 -597.1 -831.4 -971.6 -818.8 UnemploymentRate(in%) 3.7 8.1 5.3 3.6 3.6 GovernmentDebt(asa%ofGDP) 100.1 124.7 118.9 114.7 Nodataavailable Source: data.worldbank.org, accessedon23July2024 Table2:SelectedKeyEconomicIndicatorsforSingapore,2019-2023 2019 2020 2021 2022 2023 Currentaccountasa%ofGDP(in%) 16.0 16.6 19.8 18.0 19.8 ConsumerPriceIndex(baseyear2019) 100 99.8 102.1 108.4 113.6 Unemploymentrate(in%) 2.3 2.9 2.7 2.1 1.9 Ginicoefficientvalue(beforeaccountingfortaxandtransfers) 0.452 0.452 0.444 0.415 0.412 Source: Singstat.gov.sg Extract6:America’sCHIPSAct Signed into America's law in August 2022, the Creating Helpful Incentives to produceSemiconductors(CHIPS)Act isintendedtoluremicrochipmanufacturingbacktotheUnitedStates(US)afterdecadesofcompaniesoffshoringthistechnologytocheapercountriessuchasChina.AlthoughtheUSproducedcloseto40percentoftheworld’ssemiconductorsupplyinthe

1990s,thishasnowsincefallentojust12percent,withTaiwanontheotherhand,producingmorethan60percentoftheworld’ssupplyofsemiconductorchipsnow. The CHIPS Act allocated $53 billion in fiscal incentives for domestic semiconductormanufacturingandresearchanddevelopment,tobuildnewandexpandexistingsemiconductorfacilities.Companiesarealsoeligiblefora25percenttaxcredit.ThelegislationissparkingagreatdealofinvestmentactivityintheUSsemiconductorsector.Hundredsofcompanieshaverequestedmorethan$70billioninsubsidies—nearlydoubletheamount available. Privatecompanieshavemeanwhileannouncedmorethan$200billionininvestmentspendingsincethelawpassed. There'sanewfoundrealisationabout thegrowingimportanceof chipsandsemiconductorsbecause chips are one of the critical factor inputs to produce electricvehicles. Withanincreasedglobalemphasisonreducingcarbonfootprint,thishasmadesomesupportersseethis policy as a much-needed boost to America’s trade and its investment in criticaltechnologies. However, somecriticsaresceptical about theeffectivenessofthispolicychange.TherearelimitstohowmuchsemiconductorcanbeshiftedtotheUnitedStatesfromEastAsiaduetothecostoflabour,constructioncostandthelackoftrainedworkforceintheUSA.BuildinganewchipmanufacturingfacilityinUSAisestimatedtobe‘fourorfivetimesgreater’thaninTaiwan,whichbegsthequestiononthesustainabilityoftheCHIPSactespeciallywitharisingfederaldebt.EconomistsareworriedthattheCHIPSActexplicitlypullsinvestmentawayfromEastAsiaandriskshollowingout 1 majortechindustriesinEastandSoutheastAsiaregion.ThismayhavespillovereffectsonsmallerAsiacountrieswhichrelyonmajorEastAsiaeconomiesforexportgrowth.Inthelongterm,suchindustrialsubsidiesinviteretaliationfromothers,leadingtoanoverallmoreinward-lookingworld. Source: AdaptedfromCouncil onForeignRelations, accessedon14July2024&East AsiaForum, 26Nov2023 Extract7:Thechallengeoffoodsecurity Withworldfoodcostssurgingtoall-timehighs,severalgovernmentsaretakingstepstosecuretheirownfoodsupplies. Indonesia'spalmoilexportbankickedoffinoneofthemostdrasticcasesoffoodprotectionismsincethewareruptedinUkraine.Theglobaltopexporterofpalmoilimposedasweepingbanoncookingoil exports,coveringpalmoilproductsacrossthevaluechain.Thistropicaloilisfoundeverywheretoday-infood,soap,lipstickandevenprintingink-whichmakesIndonesia'smoveevenmoresignificanttothealreadydisarrayglobaledibleoilmarket. Suchexportbanshurtsmallandresource-scarcecountrieslikeSingapore.Singapore,beingahighly-importreliantcountryandanetimporterofresources,willcontinuetofacesuchglobalsupplyuncertaintiesanddisruptionsfromtimetotime.Whilethegovernmentwilldowhatitcan 1 Hollowingout referstoadeteriorationof asector whenfirmsopt for lower-cost facilitiesoverseas

tominimisetheimpactsuchasthroughstockpilingandimportdiversification,Singaporewillnotbeabletocompletelyremovethedisruptionstoourfoodsupply. Source: AdaptedfromArvindJayaram, TheStraitsTimes, 10September 2023 Extract8:DemographicschangesinSingapore Withanageingworkforceandthefertilityratefallsfarbelowreplacementrate,itwillnotbelongbeforeSingaporeworkforcesizeplateaus.Ageingwillalsocreateadditionalmanpowerneedsinhealthcareandagedcareservices.Thiscouldleadtomanpowershortfallsinkeysectorsasworkersretireandhealthcareneedsrise. Asafullyglobalisedcountry,Singaporehasbeenpluggingthelabourshortfallsbyincreasingtheinflowofforeignworkers,forexample,earlierin2023,Singaporeannouncedthatitwouldbesteppinguprecruitmentofforeignnurses. However, reliance on foreigners should not be the main or only strategy. The Covid-19pandemichasunderscoredtherisksofhighforeign-workerdependencewhenborderscloseortravelisdisrupted.Besides,itcannotbeassumedthattherewillalwaysbeareadysupplyofforeign manpower as job opportunities in other countries expand and these countriesthemselves undergo demographic transitions. In Singapore, there are limits to overallimmigration,givenourlandandpopulationconstraintsandtheneedforacoreoflocalworkersinessential jobsandsectors. Besides, bringingintoomanyforeignworkersmaycreateadepressingeffectonwages,whichputsofflocalworkersfromjoiningcertainindustries. Whiletheemergenceofnewtechnologysuchasgenerativeartificialintelligence(AI)couldhelpSingaporeproducemorewithfewerpeople,itisalsoexpectedtoputmanyexistingjobrolesatrisk. Evenif AI canhelpboost productivity, it isunlikelytobeabletosignificantlyreducemanpowerneedsinserviceindustrieslikehealthcareandhospitality.Infact,itisnecessarytoequipworkerswiththeskillsandadaptabilitytotakeupgoodjobsandthriveintheircareers.Asskill demandscontinuallyevolve,morethanever,educationshouldbeaimedatcultivatingaloveforlearning,curiosity,teamwork,resilienceandatoleranceforambiguity. Source: AdaptedfromTerenceHo, TheStraitsTimes, 30August 2023Questions:(a) DescribethetrendintheUSA’snetcurrentaccountbalancebetween2019to2023.[2] (b) With reference to Extract 6, explain the factors affecting theUSgovernmentdecisiontoimplementtheCHIPSAct. [6] (c) AccordingtoExtract 7, Indonesiaimposesanexport banonedibleoil.Usingadiagram,explainwhatdeterminesthesizeoftheincreaseinglobalpriceofedibleoilfollowingtheexportban. [4] (d) Discuss whether domestic or external challenges are more damaging to theSingaporeeconomy. [8]

(e) Withreferencetotheextractsand/oryourownknowledge, discusswhethertheSingaporegovernment shouldincreasetheimmigrationof foreignlabourorrelymoreonartificialintelligencetoimprovethestandardofliving. [10][Total:30marks]SuggestedAnswers:Questions:(a) DescribethetrendintheUSA’snetcurrentaccountbalancebetween2019to2023. [2]1m:Overallnetcurrentaccountbalanceisnegative&increasingwideningdeficit 1m: Anomaly: except for the 2022 to 2023, where the deficit improves (negativedecreases) (b) With reference to Extract 4, explain the factors affecting the America'sgovernmentdecisiontoimplementtheCHIPSAct. [6] Factor1:Benefits(HowtheActcanhelpachievemacroeconomicobjectivesforUSA) Studentsonlyneedtoexplaineitheroneofthefollowingbenefits–focusisonhowtheActcanhelptoachieveeitherofthemacrogoals. ActualEG:- TheCHIPSActencouragegreaterinvestmentspending(I)bychipscompaniesduetothegovernmentsubsidiesandtaxcredits- Higher I ⇒higherADachievehigheractual economicgrowthviathemultiplierprocessandjobscreation(reduceunN)- Assuming the economy is belowfull-capacity, when firmsseeafall intheinventories,theyaremorewillingandabletoproducemore,whichmeansitwillleadtoanincreaseinderiveddemandforworkers→Higherwagesforworkers,bettermaterialSOLfortheworkers. PotentialEG:- Thehigherinvestmentspendingonmachines,technologyandcapitalresourcesincreasethequantityandqualityofresourcesincreasethecountry’sLRASandhence,potentialgrowth.- Withhigher productivecapacity, theeconomyisnot onlyabletohavemoreresourcestoproducemoreoutput&increaseinpotentialoutput,itcanalsokeeppriceslowandstable,sincethereislesscompetitionfortheresources. ImprovedBOT:- FromExtract2,itwasexplainedthatglobaldemandforsemiconductorchipsarelikelytorisesinceitisainputusedtopro