JC Economics Macroeconomic Performance & Standard of Living Essay Model Answers
A sample question on MACRO ECONOMIC INDICATORS, and its application to macroeconomic performance and Standard of Living (SOL) in Singapore. Understand the limitations of the various indicators when assessing changes in SOL
The Ministry of Trade and Industry (MTI) announced that it expects Singapore economy to expand in 2021 by a forecast of to 6 – 7% on faster Covid-19 vaccinations, fan upward revision from the earlier forecast of 3.5 – 4%.
Source: The Straits Times 11 Aug 2021
(a) Explain the indicators used in assessing the economic health of a country.
(b) Discuss whether higher economic growth necessarily leads to a higher standard of living in Singapore.
JC Economics Essay – Macro Economic Performance of S’pore Economy
Suggested Answer for Part (a)
Economic health of an economy refers to the performance of the economy both internally and externally. A healthy economy suggests sound fundamentals and the ability to generate continuous rises in national income. The internal indicators include rate of economic growth, inflation rate and unemployment rate, whereas, external indicators is the balance of payment (BOP).
a) Economic growth
Health in terms of the production of goods and services. Healthy economic growth: is one pre-requisite for country to raise the population’s standard of living. Statistical measurement is by real GDP. Define this measure. What it needs is for GDP based on current year’s prices to increase more than inflation rate, the general price level.
To achieve sustained and health economic growth, a country must achieve sound rates of GDP growth accompanied by low inflation rate. The stability in general price stability facilitates the growth in demand needed to sustain economic growth. Other related economic indicators that can be used will be the rates of growth in aggregate demand (AD) such as consumption and investment figures. Define these statistics.
b) Price stability Inflation rate: is another indicator of economic health. Low inflation means small increases in general price level. Can be measured by consumer price index. Define.. Generally 2-3% inflation rates are considered healthy rates. stable prices. Eg: Singapore.
. Low inflation indicates economic health because it represents a country’s ability to manage cost increases as well as in balancing the growths in aggregate demand with productive capacity. Stable prices also attracts investment, both local and foreign direct investment (FDIs)
c) Full employment: measured by the unemployment rate: total number unemployed/ total work force; Acceptable figures would be below 4%. Only voluntary unemployment namely, frictional and structural.
Absence of cyclical unemployment
A country with low unemployment is considered healthy because it is fully utilizing its resources and the population is able to achieve maximum per capita income possible
d) External stability: Indicated by surplus balance of payments Define Healthy balance of payments represents international competitiveness –
The ability to export and attract foreign funds and direct investment Increases in the foreign exchange reserves of the country will be a related indicator that can be used.
JC Economics Essay – Analysis of Standard of Living in SG Economy
Define SOL of a country: It refers to the average quality of life, in terms of the level of material and non-material well-being enjoyed by its citizens. The material aspect of SOL is represented by the amount of goods and services a typical individual has for consumption, whereas the non-material aspects refers to the qualitative aspects of quality living, such as the environment and cleanliness, the amount of leisure time, etc.
(Introduction: key concepts hat have not been defined in part a)
Living standard defined as material and non material aspects of life. Generally it is true that higher economic growth does lead to higher living standards but not totally true in all cases
Thesis: AGREE that it can lead to higher standard of living Economic growth means higher income and this will increase the purchasing potent of the people Increases their ability to buy more goods and services including imported products like designers’ clothes. Also increase the ability to travel as evident by million dollar bookings of holidays during NATAS Fair. Must be noted that economic growth will also lead to higher real per capita income if rate of growth in nominal GDP exceeds that of inflation and population.
. Higher employment opportunities More jobs are created. With more jobs, households will enjoy higher income and purchasing power. Associated with rising employment level is the falling social problem especially crime rate More family activities are organized in the light of rising aspiration with stable jobs and higher income Higher economic growth enables the government to receive higher tax revenue even at constant tax rates. This will allow the government to spend more on improving the availability and quality of infrastructure and essential services for the population
Income disparity. Since 2000, income inequality has been widening Presently the Gini coefficient is at 0.480 which is higher China at 0.450. For a first world country, we have a third world income distribution like Pakistan and some African countries. (Note: Austria’s Gini coefficient is 0.23)
Long working hours and hence shorter leisure time. Unlike the Australians and New Zealanders where they close shops and government offices at 5 pm sharp Singaporeans work long extended hours at the expense of family time. Family life takes a toll as reflected by falling fertility rate, late marriages and increasing number of singles. Rising costs of living especially medical costs. Given the ageing population in years to come By 2030, 20 per cent of the population will be 65 year and the burden will be on the younger generation to subsidize the medical costs of the aged Besides medical costs, generally most goods and services are getting more expensive. The increase in prices of housing far supersedes the increase in wages; Problem of negative externalities such as pollution and traffic congestion. The hours spent traveling could have been spent with the family.
JC H2 Econs Essay – Evaluation of SOL Concept
Agree with the statement to a large extent especially in Singapore context. development of Singapore as a global city with a clean environment and favourable indicators such as literacy and home ownership is reflective of the high living standard. Facilities like drinking water, world class transport system, latest and modern medical facilities are also indicators of the high living standards that we have achieved.
Other alternatives rather than economic growth would include HDI – Human Development Index as used by United Nations. It basically measures three aspects-life expectancy, literacy rate and per capita GNP using purchasing power parity. Other alternative would be MEW – Measurement of Economic Welfare as developed by Tobin and Nordhaus.
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