IJC_H2_ECON_Q5

2011    H2 ECONOMICS PRELIM 2 ESSAY Q5          US Recession  Fall in economic growth  Fall in employment  Fall in income level  Fall in purchasing power  Fall in demand for goods and services  Fall in demand of imports by foreign countries  Fall in investments overseas due to the lack of capital funds  Depreciation of currency Multiplier  Size affects the extend of impact on RNY  US recession‐> Fall in I and (X‐M) of other countries‐> Fall in AD  Lesser fall in RNY for countries with small multiplier  E.g. Singapore (Explain the small multiplier)  Reduces vulnerability to fall in RNY in Singapore  E: Restricts the effectiveness of demand management policies by Singapore to reduce the effect of US recession Openness of economy  Open economy might mean increasing dependence on US as a key driver for growth  US recession‐> Fall in I and (X‐M) of other countries‐> Fall in AD  Greater dependence on US as key growth driver  Greater impact on unemployment (Especially for export producing industries)  E.g. China (Explain on a possible industry affected)  Greater dependence on US ‐> Increasing vulnerability to unemployment  E: Very Open economy might be able to diversify risk and export to other parts of the world that is not affected by the US recession, reduction in the vulnerability) Discuss the extent to which the multiplier and the degree of openness are likely to affect the vulnerability of economies to the impact of the US recession [25] Command  Content  Context  Discuss  Vulnerability of Economies   Economic recession   Unemployment   Fluctuating inflation rates   Volatile exchange rate   BOP deficit  With respect to US recession    Compare with multiplier and  degree of openness  Discuss the extent to which the multiplier and the degree of openness are likely to affect the vulnerability of economies to the impact of the US recession. [25]

2011    H2 ECONOMICS PRELIM 2 ESSAY Q5    Nature of economy  Resource rich economy that is dependent on domestic consumption and investment  Reduce reliance on US  US recession‐> Fall in I and (X‐M) of other countries‐> Fall in AD  E.g. Australia (Explain the rich resources of Australia and how it has decrease reliance on US)  Nature of economy determines the level of vulnerability  E: Given that they are resource rich economies‐> Would be exporting to US (Large consumer market)‐> Short run impact on BOP Nature of products exported  Income elasticity of products  US recession‐> Fall in I and (X‐M) of other countries‐> Fall in AD  If exports are income inelastic‐> Less than proportionate fall in demand for exports‐> Fall in export revenue will be lesser‐> Lesser impact on BOP  E.g. Thailand (Rice‐> Explain on the income inelastic nature and how the impact on BOP will be lesser)  Decreases vulnerability of impact  E: Product dependent and US produces their own domestic crops  Price elasticity of deman