JC Econs Full Employment & Policy Conflicts Essay Model Answers
A sample question on the main macro goal of full employment, particularly low unemployment of 4-6% for the rest of the world and 2.6-2.8% for Singpaore. (Why is S’pore so much more stringent for her unemployment objective?) Can you pre-empt the conflicts in macro goals when a policy is adopted to tackle one macro econs problem, but yet another worsens?
“Full employment should be the macroeconomic policy of a government.”
(a) Explain the main macroeconomic goals of the Singapore government.
(b) Discuss the conflicts that may arise between the pursuit of full employment and other macroeconomic policy objectives.
JC Economics – Economic Recession
The main macroeconomic goals are: Low Inflation, Economic growth, Full employment and Healthy balance of payments (BOP). For each goal: explain the concept, the economic indicator used and why the attainment of these goals is important for the country.
Inflation rate is measured as the percentage in the consumer price index over period of time. Low inflation is important for the following reasons.
- Provides a conducive environment for savings and investment. This is because low inflation ensures a stable value of money. Hence the real value of savings is protected. For investors, the low inflation means that they can more easily project future returns on investments. Hence they are more willing to undertake risks of investments. Also protects the purchasing power of wage earners and thus the SOL of the people. Trade unions will also be reasonable in asking for wage increases and this can prevent cost push inflation.
- Helps to improve export competitiveness. Low inflation ensures that the country’s exports are price competitive. Hence, this will increase the quantity demanded of the country’s exports and its export earnings, thereby improving its current balance.
- Ensures stable value of its currency. A strong S$ is important for Singapore. It instills foreign investors’ confidence in the economy because it reflects economic growth and good governance> Since Singapore depends on foreign investment, the strong S$ will enhance its ability to attract foreign investment.
Economic growth means an increase in real GNP. There are two concepts of economic growth-actual and potential growth. Potential growth refers to the increase in the full employment level of national output. This can occur when there is an increase in the productive capacity of the economy due to increase in quantity and quality of factors of production as well as improvement in technology.
- Economic growth is important because it can raise the SOL of the population. Ceteris paribus, economic growth means that national income increases. This means that people have greater ability to purchase goods and services and thus able to enjoy higher material well-being.
- Economic growth is also necessary to improve the income distribution. Singapore experiences a widening income gap in recent years. The government is actively giving out subsidies and rebates to help the low income group. In all its efforts to narrow this gap, it needs more funds. Hence when there is economic growth, there will be an increase in tax revenues to be used for this purpose. In other words, economic growth means that there is a bigger pie to be shared among the people.
Full employment or Low unemployment
Full employment means an unemployment rate of 4 to 6% . It is important to achieve full employment to ensure full utilization of the country’s resources and hence the country is able to attain its potential. In an economy with limited natural resources, it is even more important to ensure that each worker is gainfully employed. . There are costs of unemployment to the country-loss of potential output, costs to the government to help the unemployed, loss of tax revenues as well as increase in social problems.
Healthy balance of payments The BOP is a record of international transactions between a country’s residents and the rst of the world. Singapore is a country that is dependent on international trade. Hence it is important to maintain a healthy BOP because it has a direct impact on economic growth. Also a healthy BOP means that the country is accumulating foreign exchange reserves. In times of need, these reserves can be used to finance purchase of imports as well as maintaining the strength of the Singapore dollar.
JC Economics Essay – Policy Conflicts & Limitations
Conflict among the various macroeconomic goals arise because the policies have limitations. The following are the most common ones:
Conflicts between Aims:
1. Actual Growth/Cyclical UnN vs DD-pull Inflation
When a demand side such as a fiscal policy or monetary policy (regardless of whether it is expansionary or contractionary) is being adopted.
2. Potential Growth vs Structural Unemployment, Income Inequality
When either policy such as a supply-side policy or even trade policy is implemented to pursue growth.
3. Actual Growth/Cyclical UnN vs BOT Worsening
For instance, SSP may involve importing more factors of production that implies Imports me rise has listening the balance of trade (BOT) and of course the balance of payments.
4. Reducing Import push Inflation vs BOT Worsening
5. Actual Growth/Cyclical UnN/Potential Growth vs Reducing Public Debt
See another sample essay on macro conflicts here.