Using economic analysis, account for the high growth rates of the Singapore economy in 2010 & 2011.

“The Singapore economy grew by 14.8% in 2010 and 4.9% in 2011”

a. Using economic analysis, account for the high growth rates of the Singapore economy in 2010 & 2011. [10]

Essay Breakdown

Factors

economic analysis, high growth rates of the Singapore economy in 2010 & 2011

Concepts required

AD-AS analysis

Question dissection

1. Explain 1-2 changes to the AD of Singapore within the context given

2. Explain 1-2 changes to the AS of Singapore within the context given

3. Simultaneous shifts of the AD & AS, explaining the overall impact on the growth of the Singapore economy using the AD-AS framework

Introduction

AD is the total demand for final goods and services in an economy at a given time

AS is total supply of goods and services produced within an economy at a given overall price level in a given period

(RWA) 2010 & 2011 was post Global Financial Crisis, and Singapore was undergoing recovery, particularly due to the government initiatives that were rolled out.

Increase in AD

1. Increase in Consumption

Ø   Recovery from recession in 2009 resulted in rising incomes, higher purchasing power led to greater consumption

Ø   Low interest rates environment further encouraged consumption of large ticket items

Ø   Optimism

2. Increase in Investments

Ø   Higher demand for properties led to greater residential investment (construction of properties), which was also attributed to the low interest rates environment

Ø   Optimism post-recession

3. Increase in Government Expenditure

Ø   Infrastructural investment on new railway lines (MRT), building of road networks (MCE), new schools & hospitals

4. Increase in Net Exports (X-M)

Ø  Opening of new integrated resorts

Ø  Hosting of F1 race & YOG

Ø  Recovery from global recession led to trading partners having higher incomes

 

Increase in AS

Policies such as SPURS, WTS implemented during 2009 Budget resulted in an increase in productive capacity

Ø   This accommodated the increase in AD allowing for an increase in real economic growth rather than inflation

 

Illustrate using AD-AS diagram (both rightward shift of the AD & AS)

Figure 3. Effects of simultaneous shifts

b. Discuss whether the rise in economic growth rates necessarily meant that Singaporeans saw an improvement in their standard of living. [15]

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