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Macro Economic Problems Policy Tutorial (2010)v6- For Students

Macro Economic Problems Policy Tutorial (2010)v6- For Students

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Published by: cherm_koh on Oct 14, 2010
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ST ANDREW’S JUNIOR COLLEGEH1 and H2 ECONOMICS (8819/9732)Tutorial -Macroeconomic Policies
2008 VJC Prelim H2 P1 Q2 Part (c) and (d): The “Stagflation” Disease
2006 AJC Prelim H2 P2 Q2: The Economic Woes of East Asia
2008 NYJC Prelim H2 P1 Q2 Part (d): The Economies of China and India
“For the past 8 years, Chinese yuan has maintained its fixed value against the USdollar. Of late, China has come under heavy pressure to revalue the yuan becausethe USA felt it was undervalued.”Adapted from The Straits Times, Sept 2003 
What factors might have contributed to the undervaluation of yuan?[8] 
Discuss the likely consequences for China if yuan is allowed to float freely in theforeign exchange market.[17]
Q2 (b)
Discuss whether fiscal policy is the most effective way for Singapore tosustain a successful economy. [13]GCE “A” Level Exam, November 2007
Discuss whether demand-side policies are the most appropriate way for Singapore to sustain a successful economy. [13]SAJC BT2, 2008
With asset prices falling in many key markets, soaring energy and commodityprices stoking inflation, and global growth on a downturn, the world faces somedifficult policy choices”.- IMF First Deputy Managing Director John Lipsky, 22
July 2008
Explain the macroeconomic impact of the above on Singapore. [12]
Assess the policies that the Singapore government can adopt to reduce theharmful effects of these problems. [13]SAJC Prelims, 2008
SAJC/2010/JC2/H1 and H2
In view of the internal and external challenges facing the Singapore economy,discuss whether the Singapore government has adopted the most appropriateeconomic policies to overcome these challenges. [25]SAJC Mock Exams, 2008
Discuss how the characteristics of being ‘small’ and ‘open’ has influenced the policyoptions of the Singapore government. [25]H2 P2, NJC Prelim, 2009
Suggested Activities
For Monetary Policy:http://www.frbsf.org/education/activities/chairman/index.html The above website contains a series of good videos explaining monetary policy, the tools of monetary policy, and the history of monetary policy in the USA. It also has a simple game inwhich students can change the discount rate and see the effects on unemployment andinflation rates.Please note that the above website is US-based and is based on the Federal Reservesystem in the USA.
SAJC/2010/JC2/H1 and H2
2008 VJC Prelim H2 P1 Q2 Part (c) and (d): The “Stagflation” Disease
It's a toxic economic mix the nation hasn't seen in three decades: Prices arespeeding upward at the fastest pace in a quarter century, even as the economyloses steam. Economists call the disease "stagflation," and they're worried it mightbe coming back.The economy nearly stalled in the final three months of last year and probably isbarely growing or even shrinking now. That's the "stagnation" part of the ailment.Typically, that slowdown should slow inflation as well -- the second part of thediagnosis -- but prices are still marching higher. Once the twin evils of stagflationtake hold, it can be hard to break the grip. People cut back on their spending as theyare stung by rising prices and shrinking wages. Businesses, also smacked by risingcosts and declining demand from customers, clamp down on their hiring and capitalinvestment.Since last summer, the housing slump has worsened, credit problems haveintensified and the job market has deteriorated. This combination of bad news hasmade people and businesses more cautious about spending and investing —further weakening the economy. To brace the teetering economy, the FederalReserve Chairman Ben Bernanke and his colleagues have been reducing itsinterest rate since September 2007 with the biggest one-month reduction in aquarter-century in January of 1.25% points. However, to combat inflation, the Fedwould be expected to boost rates instead."The Fed has its hands full. It is preoccupied with the economic slowdown at thefront door, but inflation looks to be sneaking in the back door," said Greg McBride,senior financial analyst at Bankrate.com. "If that trend continues, the Fed wouldneed to show the economy some tough love, meaning higher interest rates to keepinflation from getting out of hand." On the other hand, Brian Bethune, economist atGlobal Insight, said Bernanke can fight only one war at a time, and the morepressing issue right now is to shore up the ailing economy. "That's the war thatneeds to be fought. The war on inflation will have to come another day," Bethunesaid.Maybe things won't be so bad. Federal Reserve vice chairman Donald Kohn saidin a speech that he doesn't expect the recent elevated inflation readings topersist. People are weathering the economic storms. Earlier this month, nervousshoppers handed the nation's retailers their worst January in almost four decades.High oil and food prices, the toll of the housing bust, the credit crunch and atougher job market all were to blame. Disappointing sales were widespread,hitting discounters like Wal-Mart Stores Inc. and upscale merchants likeNordstrom Inc. Sales of new homes fell in January for a third straight month.Orders to factories for big-ticket manufactured goods dropped in January by thelargest amount in five months.Wary employers eliminated jobs in January, the first nationwide loss of jobs inmore than four years. With the economy on the edge of a recession -- if it hasn'ttoppled over already – the Fed for the near term is much more likely to keeplowering rates.
SAJC/2010/JC2/H1 and H2

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