H2 Prelims Paper 2 Q4_Suggested Answers

Suggested answers to JC2 Preliminary Exams H2 Paper 2 4. As part of the Singapore’s economic restructuring plans, grants are provided to encourage companies to invest in more energy -efficient processes and adopt digital technologies. At the same time, large emitters will have to pay a higher carbon tax from 2024. Adapted from The Straits Times, 28 Feb 2022 (a) Explain the link between a country’s economic growth, unemployment and inflation. [10] (b) Discuss the extent to which the above-mentioned economic plans will lead to a rise in living standards for Singapore. [15] (a) Explain the link between a country’s economic growth, unemployment and inflation. [10] Command word Explain the links – use economic reasoning (Students are to identify 2 causal links to explain) Concepts AD-AS Context Open context Introduction: • Explain the definitions for economic growth, unemployment and inflation. • Economic growth ➔ measured by changes in real national income / national output. National output is the total goods and services produced within a geographical boundary of a country, within a period of time. Aim is to keep economic growth sustainable and inclusive over time. • Unemployment is the proportion of labour force that is willing and able to work but is unemployed. • Inflation measures the changes in general price level and the aim is to keep inflation rate low and stable. Requirement 1: Higher economic growth is often associated with lower unemployment. • Assuming the country is not producing near full capacity , a h igher economic growth refers to the increase in production of goods and services. This is usually due to higher aggregate demand. • Example: An increase in consumers’ and investors’ confidence can boost C and I of AD. This confidence can come from higher expected future income and higher returns on investments for firms. • Higher AD as seen from AD1 to AD2 ➔ firms react by producing more goods and services seen by increase in RNY from Y1 to Y2. To produce more goods and

services, the firms will hence utilize more available resources (FOPs) such as labour. As more labour is utilized, the unemployment could fall. • Hence, a higher economic growth (Y1 to Y2) due to higher AD can lead to lower unemployment. Requirement 2: Higher economic growth with lower unemployment can then lead to higher inflation. • As AD continues to increase from AD3 to AD4, but not accompanied with a corresponding increase in AS (or the growth in AD is much faster than the expansion of AS), the available resources will get more limited. • As firms continue to expand production, the competition for the FOPs is higher, leading to higher cost of production for most goods and services. As a result, the firms pass on the higher COP in terms of higher general price level as seen by P3 to P4 , leading to higher inflation for the country. (Note to students: other acc