2025 NYJC Chp 14-15 Globalisation IE Answers

Nanyang Junior College (2023/24 H2 Economics Tutorial) © Chapters 13-14: Globalisation & the International Economy Page 1T SECTION 3: Essays 1. (a) Explain how an economy is affected by globalisation. [10] (b) Assess whether protectionism is the best approach to minimise the adverse impact of globalisation. [15] Suggested Answer for part (a) Question Analysis Command Explain how Content Impacts of globalisation Context An economy Synopsis: Students are expected to explain at least one positive and at least one negative impact of globalisation on an economy using AD/AS analysis. Note: The synopsis details the question requirements and broad approach students are required to take. Introduction: Define globalisation as characterised by greater movement of goods, capital and labour. This essay will examine the possible positive and negative impacts of globalisation on an economy, with macroeconomic impacts such as on the balance of payments, on economic growth, employment and price stability. Body: R1: Positive Impact of globalisation on economy (i) Improve BOP Increased trade flows (both exports and imports) due to globalisation can increase an economy’s net export revenue, assuming that the increase in export revenue outweighs the increase in import expenditure. (X- M) increases, improving BOT and hence BOP, ceteris paribus. For example, countries such as China and Singapore which have depended on trade for growth have maintained many years of BOP surpluses. In addition, globalisation brings about great er inflows of foreign direct investments (FDIs), which improves the capital financial account and hence BOP, ceteris paribus. The building up of BOP surplus helps the economy to accumulates foreign reserves , strengthening the economy in the event of economic uncertainty or allowing the central bank to be able to conduct exchange rate monetary policies when needed. (ii) Achieve economic growth and lower unemployment Increased net exports & FDI (assuming that FDI is invested in capital goods), leads to AD increase, [as AD = C+I+G+(X -M)], increasing RNY, leading to actual economic growth. The transfer of more advanced technology, knowledge and skills from FDIs and inflow of foreign labour enhances the economy’s productive capacity , increasing LRAS, achieving potential economic growth (Fig 1).

Nanyang Junior College (2023/24 H2 Economics Tutorial) © Chapters 13-14: Globalisation & the International Economy Page 2T Fig 1 Based on Fig 1, globalisation inflows of trade, foreign direct investment and labour increases AD from AD0 to AD1 This initial rise in AD will cause an unplanned fall in the firm’s inventory. Hence, firms will increase production and hence increase demand for resources such as labour. As more labour is hired, they receive more in wages. The purchasing power of the labour force increases . This leads to a m