Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
2011
71,679
-50,360
21,487
4.9
5.2
Source: Singstat
Note: JJC excluded Financial account in their question. In actual fact, Singapores Capital account cannot
be so large due to the way MAS records our transactions with the rest of the world.
(a) Describe Singapores Balance of Payments account between 2008 and 2011.
[2]
Singapores Balance of Payments account is in a surplus throughout the period and it increased till
2010 and fell thereafter.
Note to tutors:
1m state initial position of the balance, i.e. BOP surplus or deficit
1m describe how the balance has changed i.e. increased or decreased and the meaning to this
change i.e. improved or worsened.
For BOP, deficit to surplus improved; deficit increased worsened. But if the surplus kept increasing
and ballooning, it is in disequilibrium so we cannot say that it has improved.
But for individual accounts be it current or financial account, a growing surplus can be described as the
position has improved because it does not mean that BOP is definitely ballooning since there are other
accounts to take into account to balance it.
(b) Explain whether the evidence from Table 2 is sufficient to account for an improvement in living
standards in Singapore from 2008 to 2011.
[4]
Note to tutors:
This question seems similar to last years promos, but it isnt.
Last years promo: Consider whether data provided in Table 2 suggest that material standard of
living in the United States might have improved from 2009 to 2011. [6m]
Answer scheme is
Thesis: Data provided in Table 2 suggest improvement in material SOL 2m
Anti-thesis 1: Data provided in Table 2 suggest otherwise 2m
Anti-thesis 2: Additional data required 1m
Stand 1m
2009
182,798.6
29727
3.2
2.0
38825
3.3
5.4
31817
3.7
0.6
47175
2.0
2.1
35817
5.4
6.6
32387
0.6
0.6
37668
3.44
51127
3.34
40217
3.52
46065
1.51
26453
1.42
30006
1.46
[1]
The difference in the value between total exports (export revenue) and total imports (import
expenditure) of goods and services between a country and the rest of the world.
(ii) Compare the trend in Malaysias balance of trade with that of Singapore over the period 2007
2009.
[2]
to
2010
United States
Growth in GDP at constant prices (%)
2.0
0
-2.6
2.8
Inflation rate (%)
2.9
3.8
-0.3
1.6
Unemployment (%)
4.6
5.8
9.3
9.6
Current Account Balance (US$ billions)
-718.1
-668.9
-378.4
-470.2
China
Growth in GDP at constant prices (%)
14.2
9.6
9.2
10.3
Inflation rate (%)
4.8
5.9
-0.7
3.3
Unemployment (%)
4
4.2
4.3
4.1
Current Account Balance (US$ billions)
371.8
436.1
297.1
306.2
Japan
Growth in GDP at constant prices (%)
2.4
-1.2
-6.3
3.9
Inflation rate (%)
0
1.4
-1.4
-0.7
Unemployment (%)
3.8
4.0
5.1
5.1
Current Account Balance (US$ billions)
211.0
157.1
141.8
194.8
Source: International Monetary Fund, World Economic Outlook Database, April 2011
(a) Describe USAs current account balance between 2007 and 2010.
[2]
USAs current account deficit decreased and the position has improved.
(b) Describe Japans current account balance between 2007 and 2010.
[2]
Japans current account surplus decreased from 2007 to 2009 and rose thereafter which means it
deteriorated from 2007 to 2009 and improved in 2010.
(c) Compare the current account balance between USA and China from 20078 to 20101.
[2]
(a)
(i)
Compare the change in Japans current account balance as percentage of GDP between
2005 and 2010 with that of USA over the same period.
Note to tutors:
Focus of question is really about how the percentage has changed. So the
description should be increase or decrease in percentage.
Possible answers:
Differences
Japans current account as a percentage of GDP is always positive, suggesting a
surplus, whilst USAs current account as a percentage of GDP is always negative,
suggesting a deficit.
Japans current account as a percentage of GDP fluctuates gradually between 3-5%,
whilst USAs has a general fall in percentage from -6% to -3%
Not accepted (due to how question is being phrased)
Differences
Japan has a current account surplus as a percentage of GDP whilst USA has a
current account deficit as a percentage of GDP (focus on position of BOT as it is
obvious)
Japan current account surplus as a percentage of GDP improved slightly from 05-07
and worsened slightly from 07-09, whereas USA current account deficit as a
percentage of GDP has improved / reduced
[2]
(a)
(b)
NOTE TO STUDENTS:
You are to come up with a detailed essay plan for every ESSAY question.
Refer to the Skills Package for Essays and bring it for tutorials.
()
Did not fully understand the Marshall-Lerner
condition.
2006
56,652.2
-30,819.7
1,163.2
26,995.7
-26,995.7
2007
69,082.4
-39,417.0
-367.8
29,297.6
-29,297.6
2008
37,275.5
-21,860.8
3,116.4
18,531.1
-18,531.1
2009
43,836.0
-32,985.8
5,606.0
16,456.2
-16,456.2
2010
75,686.7
-17,626.8
-579.4
57,480.5
-57,480.5
2011
71,679.5
-50,360.5
168.7
21,487.7
-21,487.7
Supply-side
policies
Trade
policies
Together
with
product
differentiation, ER policy
Improves X
Through
incentives
for
businesses such as lower
corporate taxes and good
governance and infrastructure
Any evaluation?
CONCLUSION
SUGGESTED ANSWERS
INTRODUCTION
Key Words
Issue
Balance of Payments (BOP) is a systematic record of all economic transactions between the
country and the rest of the world. It is made up of 2 main accounts: current account and
financial account
Problems sometimes arise over the BOP and thus the Singapore government needs to
monitor and if necessary introduce policies to manage BOP in order to ensure economic
growth and stability.
Approach
This essay aims to discuss whether there is a need for Singapore to change its policies for
managing its BOP, namely the current and financial accounts.
BODY
Thesis: No need to change existing policies.
Given our relatively healthy state of the BOP, there is no urgency to alter the set of existing policies
used to manage the BOP. This is because it has by and large benefited our exporters.
[i.e. The focus is on the trade account ]
A gradual and modest appreciation of Singdollar (S$) has does not hurt exporters
significantly
Elaborate
and
Exemplify
This entails carrying out a set of policies to cut costs; promote innovation to offer foreign
buyers better products at competitive prices.
As mentioned above, an appreciation of the S$ will lead to an increase of the price of exports
in terms of foreign currencies via higher nominal exchange rate (c), ceteris paribus.
Prices of exports remains competitive through offsetting changes in terms of :
(a) Keeping costs of imported inputs low by our gradual and modest appreciation policy
(b) Keeping domestic costs low by supply-side policies e.g. improvement in productivity.
Thus, besides a gradual and modest appreciation, it is necessary for the Singapore
government to use supply-side policies to help exporters market their goods overseas by
keeping down domestic costs.
Costs cutting measures: Government subsidise/provide tax incentives to incentivize
business firms to upgrade technology and adopt more efficient methods of production to cut
costs; to upgrade skills of their employees and thus be able to price their goods more
competitively in the international market
Product Innovation: Government subsidise/provide tax incentives to incentivise firms to
innovate; embark on R&D, market and brand their products more effectively etc.
Ensure price competitiveness and good quality will lead to high demand for our exports.
Given our exports are generally income elastic, with economic growth in our trading partners,
demand for our exports will increase more than proportionately and increase export revenue.
(ii)
To attract FDI (FINANCIAL account)
Supply-side policies such as lowering of the corporate taxes will attract businesses into the country
since it means higher after-tax profits and dividends.
Government can also spend on building good infrastructure such as a good transport system and high
speed wireless internet network that support business.
Training and education that increase labour productivity will also attract businesses that require a skilled
labour force.
(3) Trade Policies (CURRENT and FINANCIAL account)
State
The government has in recent times embarked on a policy of forging FTAs with many
countries including non-traditional trade partners e.g. middle-east; eastern and central
Europe.
Elaborate and FTAs are preferential trading arrangements to encourage more trade between member
Exemplify
countries.
FTAs enhances trade and investment flows by providing lower tariffs for exports of goods,
hassle-free custom procedures, improved market access for various commercial and
professional services, easier entry for businessmen into other countries, better terms for
investment in foreign countries etc. FTAs will set a framework for businesses in a small
country like Singapore to grow and expand globally, which in turn will generate more
employment opportunities for Singaporeans.
To date, Singapore has about 18 FTAs spanning across the whole world from North
America (US), Middle East (Jordan) Europe (EU) to East Asia ( Japan) and the Pacific
( Australia/NZ)
Evaluation:
Besides improving our BOP, the multiple FTAs also helps to diversify markets
decoupled from too much reliance on US and EU.
Anti-thesis: During Crisis periods May need to change existing policies
During Recession
State
During a major global economic downturn e.g. Global financial crisis 2008 being a highly
globalised and trade-dependent country, our exports are bound to be hit badly.
Elaborate & There is the need to temporarily suspend our gradual and modest appreciation policy.
Exemplify
During the financial crisis, the MAS did indeed adopt a zero appreciation policy to
ease the adverse impact of a slump in demand on our exporters. In fact, when
necessary, MAS allows slight depreciation.
One also note that during recession, the threat of expensive imports is at ease
as demand for essential commodities such as oil and food products is lower as
compared to good times. So the main aim will be targeting the price of exports
directly rather than through keeping price of imports low.
Exports are generally more price-elastic during bad times as importers are more cost
conscious and will try to find cheaper alternativesavailability of substitutes. When
Px in terms of foreign currencies, Qx more than proportionate since the demand for
X is price-elasticX.
Evaluation:
However, with depreciation, Pm in terms of local currencies so there is a
possibility of import-price-push inflation. Also, with higher price, Qm less than
proportionate since demand for imports is price-inelastic, M.
BUT, it is supplemented by the use of other cost-cutting supply-side policies to help
our exporters tide over this turbulent period/crisis e.g. wage subsidies; Special Risk
Initiative (SRI) sharing of risks by the government for loans lent to businesses
during this crisis.
CONCLUSION
By and large, under normal circumstances the existing policies e.g., appreciation of the S$, have benefited
the overall BOP in particular our export competitiveness except during periods of crises. However from
time to time, especially when there is a crisis e.g. severe economic downturn, the government may need to
change its policies to accommodate these contingencies in order to ensure sustained economic growth and
stability.
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