MJC H2 ECONS 9757 P1

9757/PRELIM/JC2/MJC/2018 MERIDIAN JUNIOR COLLEGE JC2 PRELIMINARY EXAMINATION 2018 _________________________________________________________________________ H2 Economics 9757/01 Case Study Questions 10 September 2018 2 hours 15 minutes Additional Materials: Writing Paper _________________________________________________________________________ READ THESE INSTRUCTIONS FIRST Do not open this booklet until you are told to do so. Write your name, class and register number in the spaces at the top of the answer sheets. Write in dark blue or black pen. You may use an HB pencil for any diagrams or graphs. Do not use staples, paper clips, highlighters, glue or correction fluid. Section A Answer all questions. Begin Case Study Question 2 on a fresh sheet of paper. At the end of the examination, fasten all your work securely to the cover sheet with the string provided. The number of marks is given in brackets [ ] at the end of each question or part question. [Turn Over] _________________________________________________________________________ This document consists of 7 printed pages and 2 cover sheets.

2 9757/PRELIM/JC2/MJC/2018 Question 1: Education Table 1: Government expenditure per student (S$) in Singapore Year 2010 2011 2012 2013 2014 2015 2016 Primary Education 6 624 6 172 7 396 8 549 9 123 10 081 10 600 University Education 20 630 20 505 20 777 21 870 22 181 21 988 21 853 Source: data.gov.sg, accessed August 2018 Table 2: Gini Coefficient (2017) Gini Coefficient (after tax and transfers) US 0.390 Singapore 0.356 Source: The Straits Times, August 2018 Table 3: GDP per capita (US$) 2012 2013 2014 2015 2016 2017 Singapore 54 715 56 389 56 957 54 940 55 243 57 714 USA 51 450 52 782 54 696 56 443 57 588 59 531 Source: World Bank, accessed August 2018 Figure 1: Government budget balance of Singapore and USA (as % of GDP) Source: Singapore Budget 2018; Congressional Budget Office, April 2018 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 2012 2013 2014 2015 2016 2017 Singapore USA

3 9757/PRELIM/JC2/MJC/2018 Extract 1: Rise in price of university education in Singapore The price of attending university in Singapore has jumped 38% on average since 2007. Official data showed that Singaporeans are spending more on higher education. Singapore's median household income grew 10% over the period and Consumer Price Index (CPI) rose 25%, yet university tuition fees were up 38%. Increased labour costs in Singapore could have been a large contributing factor in the big jump in university costs, besides the cost to un iversities of owning and maintaining buildings, covering utilities and buying research equipment. Government subsidies play a role in increas ing education affordability in Singapore. And Singapore's increases in higher education tuition fees were, in fact, relatively tame when compared to other countries. College tuition in the U.S. increased by 50% between 2001 and 2015. However, rising demands from provisions for the agei ng population, healthcare and other social needs in Singapore may threaten the sustainability of the government spending on higher education. Adapted from: CNBC, October 2016 Extract 2: Returns from pursuing higher education Unlike primary education, high er education provides individuals with concrete skills and capabilities, which in turn allow them to command a substantial wage premium when they enter the labour market. An increasing num ber of young Singaporeans are furthering their studies for this reason. There is a desire to learn more specialised skills, or secure a better job and higher pay check. Youths today also have a greater desire for personal fulfilment, which spurs them on to learn more about a subject they are interested in. Nonetheless, there are compelling reasons to heavily subsidize higher education. There are social returns to higher education. Private re turns – such as higher employability and wages – have positive social effects as well, in terms of lowering poverty and crime rates. Numerous productivity benefits also arise fr om higher education. For instance, economists hypothesise that a city with more human capital would be able to generate more knowledge capital, and the productivity gains from that would then spill over and raise incomes for the whole economy. Moreover, even if the returns to higher education were completely private, there is a case for government to intervene to ensure that ther e are equal opportunities. While it is generally feasible for individuals to f und their own tertiary education th rough loan schemes, the lower- income may face credit constraints because of t heir lack of collateral. Evidence from abroad also suggests that the lower-income tend to underestimate the returns to education due to lack of information. Hence, a key component of government expenditure on higher education is channelled towards ensuring that higher education remains affo rdable for the population at large. Adapted from: Singapore Budget 2010

4 9757/PRELIM/JC2/MJC/2018 Extract 3: Budget cuts in higher education in the United States Almost a decade since the Great Recession hi t in 2008-2009, US government spending on public colleges and universities remains well below historic levels. The recession led to record- breaking declines in government revenue, and the slow recovery prolonged its impact. The funding decline has contributed to higher tu ition and reduced quality on campuses as universities have had to balance budgets by reducing faculty and limiting course offerings. At a time when the benefit of a university educat ion has never been greater, policymakers have made going to university less affordable and less accessible to the students most in need. This has jeopardized the ability of many to afford the higher education that is key to their long- term financial success and led to rising student debt levels for those who still pursue higher education. High school students who cannot afford the rising fees in universities are opting to start work earlier instead. To help more young people reach their full potential — and, in turn, boost the economy and quality of life — it is necessary for policymak ers to target financial aid at students on the margins and those most hampered by limited resour ces. This can be in the form of need- based financial aid which is awarded to student s who have demonstrated financial need and might otherwise struggle to afford college. Adapted from: www.cbpp.org, August 2017 Questions (a) (i) With reference to Table 1, com pare the government expenditure per student on primary and university educ ation in Singapor e between 2010 and 2016. [2] (ii) Explain one possible reason for the difference observed in (a)(i). [2] (b) With reference to Extract 2, explain how investment in human capital can ‘raise incomes for the whole economy’. [4] (c) Use the concept of opportunity cost to explain one possible effect on each of consumers of education and the US government due to the ‘rising student debt levels’ described in Extract 3. [4] (d) Assess whether supply factors, rather than demand factors, are the key cause of rising price of university education in Singapore. [8] (e) Discuss whether Singapore should follow the US in lowering its higher education subsidies to better achiev e the government’s microeconomic objectives. [10] [Total: 30]

5 9757/PRELIM/JC2/MJC/2018 Question 2: Brexit – Breaking out of the European Union The European Union (EU) is a political and ec onomic union of 28 mem ber states that are located primarily in Eu