SRJC_H1 CSQ _ Essay (Prelim) (v2)

ECONOMICS 8816/01 Higher 1 PAPER 1 20 August 2008 3 hours Additional Materials: Writing paper SERANGOON JUNIOR COLLEGE JC2 Preliminary Examination READ THESE INSTRUCTIONS FIRST Write down your name and civics group on all the work you hand in. Write in dark blue or black pen. You may use a soft pencil for any diagrams, graphs or rough working. Do not use staples, paper clips, highlighters, glue or correction fluid. Sections A Answer all questions. Section B Answer one question. At the end of the examination, fasten all your work securely together. The number of marks is given in brackets [ ] at the end of each question or part question. You are reminded of the need for good English and clear presentation in your answers. This document consists of 8 printed pages. © SRJC 8816/01/JC2PreliminaryExam/08 [Turn over

2 Section A Answer all questions in this section. Question 1 Extract 1: Still sky high There is no pleasing oil traders. Or so King Abdullah of Saudi Arabia must think. No sooner had he pledged to pump more oil in a bid to lower the price, than the price began rising. In June 2008, it approached US$138 a barrel. There were two main reasons for the market’s sceptical response. Saudi Arabia has only offered to boost its output by 200,000 barrels per day which is about 0.2 percent of the world’s current consumption of 87 million barrels per day. The latter is due to booming economic expansion in emerging economies such as China, the manufacturing factory of the world and India. Worse, its leaders had told various foreign leaders about their plans in the preceding weeks, so oil traders had already digested the news and were looking for more. Hedge funds and other traders were piling into crude oil to shield themselves against a weak US dollar. In addition, the markets see potential disruptions around every corner such as political tensions over Iran, the continued violence in Nigeria, Africa’s largest oil producer and the impending hurricane season in the Gulf of Mexico; just the sort of news that makes oil traders jumpy. With the price of oil bouncing upwards amid predictions it could rise to US$200, several Asian governments have already conceded they cannot c ontinue subsidising fuel prices without worsening the inflation that is already a looming menace across the region. In addition, the resulting growing public debt from government subsidies could cause far more damage than high oil prices. Artificially low prices encourage waste, along with the costs in terms of pollution and traffic congestion. Faced with ballooning subsidy bills, Malaysia recently raised fuel prices by 41 percent. The government's fuel subsidy bill of RM40 billion is roughly equal to the country’s entire development spending. Indonesia also raised fuel prices