2020 H1 econs CSQ2 Suggested Answers

1 © Anderson Serangoon Junior College Economics Department H1 CSQ2 GCE A Level Examinations 2020 Suggested Answers (a) Using the information available, compare the post-2008 performance of Italy and Singapore with respect to GDP, inflation and unemployment. [6] Figure 1 shows a sligh t fall in GDP of Italy post-2008 to 2017 while Singapore experienced a slight increase in GDP. However, GDP of Italy was always greater than that of Singapore, indicating larger gross national output, which translates to larger amounts of goods and services for consumption and possibly higher material standard of living. Table 3 shows the inflation and unemployment rates of Italy and Singapore. Both countries’ inflation rate fell from 2013-2016 before increasing in 2017. Singapore experienced a longer period of deflation in 2015 and 2016 compared to Italy with only a year of deflation in 2016 , indicating greater price instability in Singapore which would adversely im pact firms’ investment decisions and hence economic growth in Singapore. There was consistently high unemployment rate in Italy whereas Singapore’s unemployment rate is consistently low thro ughout 2013-2017, indicating greater efficiency in resource utilisation in Singapore. [OR: Unemployment rate in Singapore was consistently lower than the rate in Singapore, by at least 5 times, indicating greater efficiency in resource utilisation in Singapore.] (b) (i) State the components of aggregate demand. [2] The components of aggregate demand (AD) include consumption expenditure, investment expenditure, government expenditure and net exports. (ii) With reference to Extract 4, explain how the US’s fiscal policy and the rapid economic growth of China contributed to the US’s economic recovery from its 2009 recession. [6] As highlighted in Extract 4, “a modest programme of tax cuts and increases in government spending” contributed to the US’s economic recovery. With a decrease in personal income tax rates, disposable income increases, consumers will increase their spending on goods and services, resulting in an increase in consumption expenditure and thus AD and real national output. Tax deductibility of interest payments allow for better financing conditions and recovery for many of the US citizens that are experiencing unemployment. With a decrease in corporate tax rates, there is higher after-tax profits for the producers. This may induce them to utilise the higher profits for investment projects thus increasing AD and real national output. Since G is a component of AD, an increase in G will raise AD. For instance, the US government may increase expenditure on infrastructure to impro ve the transport network or to provide more funding for building of public institutions such as schools and hospitals. This leads to an increase in AD and in turn increase real national output. With a rapid economic growth of China, there will be