SRJC H1 ECONS Answers

1 © SRJC 8819/01/JC2PreliminaryExam/14 2014 SRJC Preliminary Examinations – H1 Economics (8819/01) Suggested Answers Question 1 Middle Class and Education in Asia Extract 1: The rise of Asia's middle class Companies rub their hands with glee when they think of Asian consumers. The key is the rising middle class. In a DBS Bank’s report, Imagining Asia 2020, Asia today has a middle class of 525 million people. They make up 28% of the world's middle class. This is projected to expand significantly to an incredible 1.74 billio n people over the next 10 years. It's not just a China and India story but one of South-east Asia too. “Over the next nine years, Malaysia and Thailand will see a significant increase in the number of people who will spend more than US$10 a day,” DBS said. As Asia's middle class grows, so will its demand for goods and services. “The rising middle class will be a significant factor in reshaping national economies. They will be an influential and profitable market segment thanks to their size and emerging buying power,” noted DBS. Durable goods For a start, there will be much more demand for durable goods such as refrigerators, cars, television sets and mobile phones. While the middle class is growing, the more impressive expansion will come from the income groups of those earning between US$4 and US$10 a day, especially in Indonesia, Vietnam, India and China, said DBS. They will also demand goods and services but at a cheaper price, which will in turn drive the search for innovat ive solutions to achieve this. Godrej, an Indian manufacturer, is one such company, selling refrigerators for just US$70. Education and health care It is not just demand for goods that will rise. The middle class will also be willing to spend more on important services such as education and health care. This will in turn drive demand for infrastructure – more schools and hospitals. Source: The Straits Times, 23 October 2011 Table 1: Household final consumption expenditure per capita (annual % change) 2009 2010 2011 2012 China 8.9 7.7 10.6 7.3 India 6.0 7.3 7.9 3.7 Japan -0.6 2.9 0.2 2.5 Malaysia -1.2 5.0 5.0 5.9 Singapore -3.4 4.3 2.4 -0.3 Source: data.worldbank.org, 2014

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3 © SRJC 8819/01/JC2PreliminaryExam/14 children drop out of school as early as age 10 and where university education remains largely out of reach. India estimates that there were 13.6 million post-secondary students in 2009, about six million fewer than in the United States. If the government reaches its goals, India could have nearly twice as many college students as does the US by the end of the decade. But Indian officials acknowledge that the rapid expansion of public colleges and universities will not come close to meeting the demand. Privately run schools fill the gap through distance education, but often their offerings are of low quality, Mr Devesh Kapur, a political scientist at the University of Pennsylvania, told The Washington Post. Mr Pawan Agarwal, an adviser to the federal government's planning commission on higher education, said the Indian government will start to shift its attention “from rapid expansion to quality expansion” this year. The new institutions are fulfilling one mission already, however: They are raising the expectations of a new generation of Indians. Source: Sarah Garland, Washington Post, 1 January 2012 Extract 4: Education woes in Malaysia Malaysia needs scientists and a professional workforce in science-related fields to move the economy up the value chain. Currently, it is heavily dependent on resources and labour- intensive manufacturing industries. “It is already a systemic problem – Malays ia is unable to meet demand for engineers and professionals in science-related fields because there are not enough students in this stream,” said political analyst Khoo Kay Peng. “It will be challenging for Malaysia to reinvent its economy as the technology curve moves upwards.” Source: Yong Yen Nie, The Straits Times, 26 November 2012 Extract 5: India's coffers get boost from remittances India sells everything from software to textiles abroad, making it the world's ninth-largest exporter country. But at times of economic hardship, a very different kind of commodity helps replenish its foreign exchange reserves – people. Last year, for example, official figures show that Indians sent home about US$66 billion (S$80 billion), up from US$55 billion a year before. These international remittances help moderate India's precarious current account deficit, which widened to about US$78 billion in 2011/12 due to slowing global demand. Source: Krittivas Mukherjee, The Straits Times, 12 December 2012

4 © SRJC 8819/01/JC2PreliminaryExam/14 Suggested answers (a) (i) Compare the change in household expenditure per capita between India and Singapore from 2009 to 2012. [2] 1. Household expenditure per capita always rose in India but fell in 2009 and 2012 in Singapore. 2. Household expenditure per capita rose in India and Singapore in 2010 and 2011. (ii) How could this change in household expenditure per capita in