ACJC H1 Prelim 2024 CSQ2 Solutions

Question 2: Economic Impact of an ageing population Source: Singapore Department of Statistics & Statista, accessed on 23 July 2024 Extract 5: The costs of ageing The number of people aged 65 years or older worldwide is projected to more than double, rising from 761 million in 2021 to 1.6 billion in 2050. The number of people aged 80 years or older is growing even faster. Population ageing is an irreversible global trend. It is the inevitable result of the demographic transition – the trend towards longer lives and smaller families – that is taking place even in countries with relatively youthful populations. As fertility levels fall, the share of younger people declines, while the shares of working age adults and, eventually, older people go up. Further population ageing is driven by more people living longer, healthier lives. Ageing societies may face fiscal challenges due to rising costs in healthcare, long-term care, retirement and other old -age support, combined with a potential reduction in government revenue from fewer working-age taxpayers. Projections indicate that typically these programs will be unsustainable unless taxes are raised, benefits are reduced, or both. Ageing societies tend to experience slower economic growth. However, economists are worried that even as Central Banks drive interest rates to fall, some firms may choose to cut investment spending in the domestic economy. Should firms become pessimistic, economy could have zero growth with high unemployment for many years. Source: United Nations, Jan 2023 and: Cost of Ageing, Finance & Development, March 2017, Vol 54, No.1 Extract 6: Can ageing spark a surprise economic boom? An ageing population could spur economies to adopt the use of greater technology alongside higher life expectancy to increase productivity the working population. This could potentially -5 0 5 10 15 20 2017 2018 2019 2020 2021 Figure 1: Population and Labour data of Singapore (in %) % of Residents aged 65 years and older as share of resident population in Singapore Labour force growth rate (aged 15 and above)

2 ©ACJC2024 Preliminary Exam 8843/01 offset losses from a shrinking labour force. Some analysts predict that while ageing might slow down the country’s Gross Domestic Product (GDP) growth rates, it may be unlikely to affect real income per capita – which is what matters most to people. As a country’s population growth slows or declines, a lower GDP growth doesn’t necessarily mean that per capita income growth is slowing down. In addition, the population in such economies would have the chance to accumulate lots of capital for investment in their own health and education, since they have fewer dependents to spend on. This leads to a country which has more knowledgeable and experienced people. If governments are forward-looking and act early, encouraging such behaviour, this can potentially lead to improved productivity over longer lifespans. This