2026 ACJC H2 Econs Paper 2 Q4 Prelim ANS

Essay Q4 Suggested Answers 4 Singapore embraces artificial intelligence for economic growth, but citizens and businesses face growing anxieties regarding job displacement. (a) Explain the benefits and costs of technological advancements on standard of living in Singapore. [10] (b) In light of rapid technological advancements, discuss whether fiscal policy is the best way to achieve economic growth that is inclusive. [15] (a) Explain the benefits and costs of technological advancements on standard of living in Singapore. [10] Requirement 1: Benefits of technological advancement on standard of living in Singapore [Most Important Benefit] Benefit 1: Higher Real Incomes through Economic Growth (Material SOL) Technological advancements increase the productivity of firms, as more output can be produced per unit of input. This lowers the unit cost of production, causing the Short-Run Aggregate Supply (SRAS) to increase, represented by a downward shift of the SRAS curve. Firms pass on the lower average costs to consumers in the form of lower prices, causing the General Price Level (GPL) to fall. The lower GPL increases the purchasing power of consumers, stimulating greater demand for goods and services. Firms respond to the fall in inventories by increasing production, leading to a rise in Real National Output (RNO) and hence actual economic growth. Furthermore, technological advancements such as investment in AI or automation also increase the quality of capital and labour, expanding the economy's productive capacity and shifting the Long-Run Aggregate Supply (LRAS) rightward. This enables Singapore to achieve potential economic growth, sustaining higher levels of output over time. As RNO rises, household incomes increase, allowing Singaporeans to afford more and better-quality goods and services. This translates into a higher material standard of living, as measured by rising real GDP per capita.

For example, Singapore's government has actively promoted digital transformation through initiatives such as the Productivity Solutions Grant (PSG), which subsidises SMEs in adopting automation and digitalisation. This has enabled firms across sectors such as smart manufacturing, fintech, and logistics to raise productivity, contributing to sustained economic growth and higher incomes for workers. Benefit 2: Lower Cost of Living (Material SOL) As technological advancements lower the unit cost of production, firms are able to offer goods and services at lower prices. This is particularly significant in Singapore, where the cost of living is a key concern. With a lower GPL, the real purchasing power of households rises. Consumers can therefore afford a wider variety of goods and services, improving their material standard of living. This is especially beneficial for lower-income households, who spend a larger proportion of their income on necessities. Benefit 3: Improved Quality of Life (Non-Material SOL) Beyond material gains, technological advancements also enhance non-material standard of living. In the healthcare sector, advances in medical technology improve the quality and accessibility of healthcare services. This can lead to better health outcomes, lower mortality rates, and longer life expectancy for Singaporeans. For instance, the adoption of telemedicine platforms has made it easier for patients, including the elderly, to access medical consultations without the need for physical travel, reducing inconvenience and improving quality of life. Requirement 2: Costs of technological advancement on standard of living in Singapore Cost 1: Structural Unemployment (Material and Non-Material SOL) One of the most significant costs of technological advancement is the displacement of workers through automation and AI. As firms adopt technologies such as automation of manufacturing processes, the demand for low-skilled and routine workers falls sharply. At the same time, the increased adoption of technology increases the demand for high skilled workers, for example programmers to programme the AI and machines. Workers whose skills are rendered obsolete by technology are unable to find employment in the growing sectors, resulting in structural unemployment. There is a mismatch between the skills of the unemployed and the skills demanded by employers. For the low skilled workers and households affected by structural unemployment, the loss of income reduces their disposable income and purchasing power, causing a direct fall in their material standard of living . They are no longer able to afford the same quantity and quality of goods and services as before. Beyond the material dimension, structural unemployment also worsens non-material standard of living. Prolonged unemployment leads to heightened stress and anxiety, which reduce the psychological well-being of affected workers and their families. The growing anxieties over job displacement mentioned in the preamble reflect this deterioration in non-material SOL . Cost 2: Worsening Income Inequality (Material SOL) Technological advancement tends to disproportionately benefit high-skilled workers while disadvantaging low-skilled ones, thereby widening income inequality. As firms adopt AI and

automation, the demand for high-skilled workers such as software engineers and AI specialists rises, driving up their wages from W 0 to W 1 . Conversely, the demand for low-skilled workers falls, exerting downward pressure on their wages. This difference in wage outcomes between the high-skilled and low-skilled widens the income gap in Singapore, as reflected in a rising Gini coefficient. The widening income gap means that the gains from technological progress are not evenly distributed across society. While high-income households enjoy rising real incomes and improved material SOL, low-income households may experience stagnant or falling real wages. This non-inclusive growth reduces the material standard of living of the lower-income segment of the population , even as aggregate real GDP per capita rises. Cost 3: Environmental Costs (Non-Material SOL) The expansion of technology-intensive industries such as data centres, semiconductor manufacturing, and