2024 MI Prelims H1 Econs (A) Macro CSQ

2024 H1 EOY Exams – Macro Case Study Suggested Answers (a) (i) Using Figure 2, describe the trend in Indonesia’s budget position as a percentage of GDP from 2019 to 2023 [2] • Indonesia is facing a budget deficit [1] • The deficit as a percentage of GDP is decreasing / improving [1] Or • [Refinement] In 2020, Indonesia’s deficit as a percentage of the GDP is the highest 1 mark for identifying that Indonesia is facing a budget deficit throughout the period 1 mark to describing the trend / one refinement (ii) State the components of government budget. [1] The components are government spending and tax revenue. (b) With reference to Table 1, comment on the reliability of the use of real GDP growth to measure the changes in Indonesia ’s standard of living over time. [6] An economy’s standard of living (SOL) can be defined as the well -being of residents in the economy and is typically categorised into material standard of living and non-material SOL. o Material SOL is associated with the amount of goods and services available for consumption by the residents of an economy. This is usually measured by real GDP per capita. o Non-material SOL is associated with the intangible aspects of well-being such as literacy rates and life expectancy of residents. R1: Real GDP growth is reliable to measure changes in Indonesia’s SOL From Table 1, real GDP growth rates are all positive throughout the period suggesting Indonesia ’s real GDP has increased over the period. The increase in real GDP means higher production of goods and services, which means more goods and services are available for consumption in the country. As such, the material SOL has risen over time. R2: Real GDP growth is not reliable to measure changes in Indonesia’s SOL However, real GDP growth is not reliable as it does not take into account the population changes. Hence, there is a need to look at population growth. T he population growth rates are lower than the real GDP growth rates throughout the period, this means that real GDP per capita has increased. With higher real income per person, purchasing power increases. Each person can purchase more goods and services. Hence, material living standards in Indonesia has increased. There is also a need to look at Gini Coefficient. If the rise in income is concentrated only among the higher -income group and not enjoyed by the lower- income group, not everyone has a rise in purchasing power and material living standards as shown by real GDP per capita. This is so as real GDP per capita is just an average figure. From table XX, there is a slight increase in the

2 value of Gini coefficient . Hence, it is very likely that there is a fairly equal distribution of income. Conclusion Real GDP growth is only reliable to a certain extent in measuring changes in Indonesia’ SOL. There is a need to look at real GDP per capita couple d with Gini Coefficient to de