TJC H1 ECONS EQ4 Ans

Suggested Answer for H1 Prelim EQ4 The creation of the ASEAN Economic Community (AEC) has potentially significant consequences for the Singapore economy. ASEAN leade rs established the AEC, one of whose aims is to promote freer movement of trade an d capital in the region. Mr. Guy Harvey-Samuel, chief executive of HSBC Singapore, s aid that if the AEC is well implemented, Singapore’s gross domestic product (GD P) would be 9.5 per cent higher by 2030. a) Explain how you might use GDP to assess a countr y’s living standards. [10] b) Discuss whether the AEC would benefit Singapore’ s economy. [15] Question Dissection a) Explain how you might use GDP to assess a country’s living standards. [10] Schematic Plan Explain a process: Identify the start & end point Start point: Manipulate GDP statistics End point: evaluate living standards material & non-material Introduction • Define living standards and GDP. • Establish the link between the 2 concepts. • Provide an overview of the answer. Body • Explain how GDP, when accounted for inflation and population growth, can be used to assess a country’s living standards. o Explain the need to account for inflation use ‘real GDP’ o Explain the need to account for population growth use ‘real GDP per capita’ o Explain how real GDP per capita can be used to assess both material & non- material living standards Conclusion (summary)

Suggested Answer for H1 Prelim EQ4 Suggested Answer Comments Standard of living can be divided into two categori es, material and non-material. Material standard of living refers to the bundle of goods and services available to the average citizen per year. Non- material living standard can be defined as the qual ity of life and measurements usually include stress levels, healthc are and education standards, and the state of environment. Although gross domestic product (GDP) is not a perfect indicator o f standard of living, it is a measure that is commonly used. GDP is defined as the value of all output produced by factors located within the geographical boundary of the country, re gardless of the ownership of factors of production, over a given ti me period. GDP is widely used as a measure of national income. After accounting for inflation and population growth, real GDP per capit a can be used to assess a country’s living standards. As GDP measures the total spending on goods and ser vices in all markets in the economy, if total spending rises fro m one year to the next, the economy must producing a larger output of goods and services, and/or goods and services are being sold at higher prices. To measure the total quantity of goods and services available to citizens more accurately, price changes have to be accounted for. Real GDP is GDP measured in constant prices, i.e., in terms of the prices ruling in some base year. This would elimina te changes in prices and reflect how much real output has changed from one year to another. Furthermore, to measure the quantity and quality of goods and services available to the average citizen per year, population growth has to be accounted for. Real GDP per capita is mea sured by dividing real GDP over the size of the resident pop ulation. A rise in real GDP per capita indicates a rise in real income per capita, and hence a likely rise in the material standard of liv ing because with a higher income, individuals can afford greater amoun t and better quality goods and services. In addition, higher income per capita may lead to h igher tax revenue for the government, enabling it to spend more not o nly on basic necessities like health or education, but also sani tation, potable water supply, pollution reduction and arts/culture. Empirical evidence shows that countries with higher real GDP per capit a, also score higher in indicators of quality of life such as lif e expectancy and infant mortality rates. Thus, higher real GDP per c apita may also lead to higher non-material standard of living. In conclusion, if we take into account both inflati on and the size of the population, though imperfect, GDP can be used t o assess a country’s living standards in both the material and non-material aspects. Define standard of living – material & non-material. Establish link between standard of living & GDP. Define GDP. Provide an overview of the answer. Explain the need to account for inflation to derive real GDP. Explain the need to account for population growth. Explain how real GDP per capita can account for material standard of living. Explain how real GDP per capita can account for non- material standard of living. Summary of answer

Suggested Answer for H1 Prelim EQ4 Mark Scheme Knowledge, Application / Understanding and Analysis L3 Answers explain thoroughly why there is a need to a ccount for inflation and population growth. Answers explain thoroughly how real GDP per capita might reflect a country’s material and non-material living standards. Answers in this level are characterised by well-str uctured paragraphs AND a logical flow of arguments. Answers that fail to explain how real GDP per capit a might reflect non- material living standards will be capped at 8 marks. 7 – 10 L2 Answers explain thoroughly how GDP might reflect a country’s material (and non-material) living standards BUT fail to exp lain why there is a need to account for inflation and/or population growth. OR Answers explain how GDP, when accounted for inflati on and population growth, might reflect a country’s material (and non -material) living standards BUT lack rigour. 4 – 6 L1 Answers may have some knowledge of the concept of s tandard of living and/or GDP, with significant conceptual errors or are very descriptive. 1 – 3

Suggested Answer for H1 Prelim EQ4 Question Dissection b) Discuss whether the AEC would benefit Singapore’s economy . [15] Schematic Plan To investigate and present both sides of an argument Context - recognise that Singapore is small and already open to globalisation Freer movement of trade and capital in the ASEAN region (greater economic integration) Impact: benefits vs. costs Introduction • Give brief background. • State approach or provide an overview of the answer. Body (1) – Benefits of the AEC to SG Evaluative Conclusion • Judgement on whether the AEC will benefit Singapore. • Any relevant evaluative comment, e.g. factors that may affect the overall impact on the SG economy. Body (2) – Costs of the AEC to SG Benefits of increased trade flows to SG Benefits of increased capital flows to SG Costs of increased trade flows to SG Costs of increased capital flows to SG

Suggested Answer for H1 Prelim EQ4 Suggested Answer Comments One of the aims of the ASEAN Economic Community (AE C) is to promote freer movement of trade and capital in the region, which can have potentially significant consequences for t he Singapore economy. This essay seeks to examine the potential benefits and costs of the AEC, before forming a judgement on whe ther the AEC would benefit Singapore’s economy. The theory of comparative advantage states that pro vided the opportunity costs of producing various goods differ in two countries, a country is able to enjoy higher consumption level s if it were to specialise in goods in which it has comparative adv antage in, and trade the good for other goods in which it has a co mparative disadvantage. With lower trade barriers and freer trade in the AEC, a greater degree of specialisation based on comparati ve advantage is encouraged and Singapore is likely to benefi