General answering skills

Disclaimer: These notes are based on my opinion on how the questions should be tackled. Do take it
with a pinch of salt, and practice to see how they are applied.

1. Definitions
a. Use standard definitions
b. State the types present
i. Unemployment
• Demand-deficient
• Structured
• Frictional
• Seasonal
ii. Standard of Living
• Material
• Non-material
iii. Inflation
• Cost-push
• Demand-pull
iv. Externalities
• Positive
• Negative
• Consumption
• Production
2. When the term ‘large change’ is used, it usually involves elasticity
3. When asked to explain the relationship between two concepts, show how each concept
affects the other
a. How A affects B, and then how B affects A
4. When asked for effectiveness
a. Does it do it’s intended job
b. For macroeconomics, consider its impact on the 4 aims
c. For microeconomics, consider its impact on efficient and equality
d. For higher level analysis, include a brief paragraph on the other aims
i. E.g. When analysing a macroeconomic policy, look at its impact on equality
ii. E.g. When analysing a microeconomic policy, look at its impact on the 4 aims
5. When asked for desirability
a. Does it impact other policies/ other areas/ other aims?
b. Is it sustainable?
6. Try to have a pre-content explanation
a. Define ‘new’ concepts as stated in the preamble, using the preamble to help
i. Like R&D
b. When asked about elasticity, briefly state how demand and supply determines price
and quantity
i. What is demand and supply

Done by Nickolas Teo Jia Ming

 ii. What are their determinants
iii. How prices are determined
c. When asked about a measurement, like inflation or unemployment or growth…
i. How is it measured (not the types)
• CPI
• GDP
ii. What are the types
• Headline vs core inflation
• Cost-push vs demand-pull
• Structural vs demand deficient
• Actual vs potential
iii. What does it mean
• Higher living costs
• Productive inefficiency
• Overheating economy
7. Preamble content should also be used in part a, as part of applications marks if possible.
a. Like how it causes market failure
b. Like what are the factors affecting the issue
i. Demand and supply
ii. Macroeconomic goals
8. When introducing a new term in the middle of the essay, you need to explain or define it.
9. Diagrams
a. Show deadweight loss
b. Show cause of divergence
10. List of diagrams axis
a. Price against Quantity
i. Demand and supply
b. General price level against Real national income
i. AD/AS
c. Interest rate against Volume of investment
i. MEC
d. Planned expenditure against National income
i. AE/Y
e. Price, revenue, cost against Output
i. Market structure
11. When drawing a diagram for elasticity, draw both elastic and inelastic cases to show the
difference
12. When showing separate effects use separate diagrams
a. Use only a single diagram to show multiple effects when you’re looking for the result
i. Like final price and quantity
13. When asked to suggest policies, supply-side should usually be one of them
a. Solves almost everything
b. Can use in evaluation for LR benefits
14. For ‘most appropriate’ questions, look at the conditions of

Done by Nickolas Teo Jia Ming

 a. If recession
b. Near full employment
c. Open economy
d. Closed economy
15. In evaluation, don’t introduce new policies
16. If the question is not focused on national income indicators, no need to explain choice of
GDP or GNP
17. When talking about burden on producers or consumers, examine their changes in producer
or consumer surplus
18. When describing/ evaluating a change, you need to include these characteristics
a. Direction
b. Magnitude
c. Relative importance
i. Relative to other countries
ii. Historical trends
d. Duration
e. Ways of measurement
i. GDP or GNP
ii. Income, output or expenditure
iii. PPP or CPI
19. Avoid absolute words like
a. Will
b. Always
c. Never
20. When asked about impact on society
a. Society is usually microeconomics, so look at producers and consumers
21. When analysing the effectiveness of a policy
a. It is effective for certain causes of the problem
i. E.g. High inflation from import prices can be tackled by exchange rate
b. It is not effective for other causes of the problem
i. E.g. High inflation from wage costs cannot be tackled by exchange rate
c. Does it reach the target audience
i. E.g. Rich farmers benefit more from price floor
d. Is it set correctly
i. E.g. Difficulty in determining MEB/ MEC
ii. E.g. Difficulty is setting price floor/ celling

Done by Nickolas Teo Jia Ming

CSQ skills
Disclaimer: These notes are based on my opinion on how the questions should be tackled. Do take it
with a pinch of salt, and practice to see how they are applied.

1. Total time: 1h 7.5 min

a. 1mark = 2 min
b. 7 min for reading questions and extract
2. Marks
a. 1-5 marks
i. Point marking
b. 6-8 marks
i. LORMS (Level of Response Marking)
c. 8-9 marks
i. LORMS + 1 Evaluation
d. 10-12 marks
i. LORMS + 2 Evaluations
3. For 10 marks CSQ
a. Identify problem
i. Causes
ii. Impacts
b. Suggest possible solutions
i. Introduce policy
ii. Change/ remove policy
c. Evaluation
4. No repeating of answers
5. Link usually present between part (i) & (ii) & …
6. Answer should consist of economic concept supported by extracts of CSQ
a. Inference should be obvious, but no need to directly quote
b. Inferences can be reused, not usually should not due to potential overlap
7. Link the end of paragraph to question
8. Look out for ‘s’ (relationships, differences, causes, reasons, consequences) to signal more
than one answer
9. Look at the extract title to gain a gist of the content of the extract, and what content should
be in the answer
10. Reference to extract, by using “From extract __ “direct quote””, to make it easier for
examiner
a. Try not to rephrase, as the meaning might be lost
11. To show trend, it is usually good to show percentage change
12. Trend refinement
a. Sharp rise/ drop
b. Fluctuations
13. Keywords for relationship
a. Direct/indirect
b. Proportional/Inversely

Done by Nickolas Teo Jia Ming

 c. Positive/Negative
14. When accounting for trend and relationships, you need to account for the general trend, and
the refinement as well
a. Short term impacts can be used, as the yearly data is a sum of all the year’s events
15. When asked to compare changes
a. Look for similarities and differences
i. Direction of change (increase/decrease)
ii. Extent of change
• From negative value to positive?
o E.g. deflation to inflation
• Larger increases for 1?
b. If comparing more than 2 things
i. State the general trend among all the statistics
ii. State who has the biggest and smallest change
iii. State who is the largest and who is the smallest
16. Use keywords that answer the question
a. Rises relatively to
17. If you use the word ‘sharp’ or ‘great rise’ in your trend, usually account using elasticity
18. If the question indicates that the good is inelastic, you need to quote figures to show that
you understand it too.
19. When asked to use economic analysis, there are several concepts that could possible apply
a. Demand and supply
i. Determinants
ii. Elasticity
b. Theory of firms
i. Market power
20. Diagrams only needed when asked, or if it’s helpful to illustrate a concept
21. Only label the diagram when you’re sure of the labels
a. Externalities usually don’t have labels
22. Looks for both supply and demand factors that affect the price and quantity of the good
23. Watch out for data that is in reverse chronological order
24. Highlight key parts of the data. For example:
a. % of GDP
b. Index of
c. US/1995 = 100
25. When quoting an index, there is no units
a. The price of ___
b. Rose/ fell from a price index of ___ in ___
c. To a price index of ___ in ___
26. When interpreting data, try to look for deeper trends like
a. Asian economies
b. LDC vs DC
c. Small open economy
d. Opening up borders to trade
27. Always define terms used in the question

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28. If they say ‘identify’, just state, and explain if have time.
29. For ‘to what extent’, give both sides, using terms like
a. Largely
b. To a small extent
30. When asked to evaluate/ analyze the causes of an event, you need to show why the event
may occur, and why it may not. (Show both sides)
31. When asked if the data is useful or effective
a. Look at numbers, graphs, charts and tables first
b. Then look at the extract
c. Give both sides
i. Why it support the assertion
ii. Why is does not
• Missing data/ other indicators
• Certain portions of data disagree
32. When asked to use or explain a concept, give a situation and its causes and explain from
there. Link to question if needed
a. When ___ improves, it is due to ____. Hence …
33. When the question talks about the future, consider
a. YED as income increases
b. Long run effects of policies
34. For impact on economy, classify into
a. Internal effect
i. Unemployment
ii. Inflation
iii. Economic growth
b. External effects
i. BOP
35. Can classify trends, for unemployment, inflation etc., into categories
a. High
b. Moderate
c. Low
36. For large mark questions
a. Do not neglect the data when looking for supporting extracts
b. Use raw data instead of processed data
37. For 10 marks question
a. Define economic concept
i. Use economic terms/ jargon
b. Explain the concept and its effects
c. Answer the question using the concept (2 paragraphs)
d. Evaluation
38. When reading articles, take note of the context the words/jargons are used in. For example:
a. Sunk costs
i. The price of the machinery
ii. The costs of transporting the goods
iii. The price of building the factory

Done by Nickolas Teo Jia Ming

 b. Trade deficit/ surplus
i. For which country
39. For anti-thesis questions, state either the
a. Limitations
b. Side-effects
40. If the question is difficult, try to use as much of the extract as possible
41. For evaluation
a. Use words like
i. I believe that
ii. I feel that
iii. In my personal opinion
b. Make a stand/ judgement and support it with extract and concept
c. Look at different cases
i. Time frame
ii. DC or LDC
iii. Other indicators
d. Propose solutions

Done by Nickolas Teo Jia Ming

Unit 1 answering skills (Scarcity, choice and opportunity
costs)
Disclaimer: These notes are based on my opinion on how the questions should be tackled. Do take it
with a pinch of salt, and practice to see how they are applied.

1. Scarcity
a. It is the presence of limited resources because of unlimited wants
b. All resources have alternative uses, and a choice has to be made
2. Opportunity cost
a. It is the highest valued alternative that has to be forgone to produce or consume a
particular good or service
3. Choices for the market to make
a. What to produce
i. Allocative efficiency
b. How to produce
i. Productive efficiency
c. For whom to produce for
i. Equity
4. Allocative efficiency
a. When the allocation of resources is optimal to fulfil as many wants as possible
b. The best use of resources to maximise society’s welfare
5. Productive efficiency
a. When the good or service is produced at the lowest possible cost
b. Factors of production used efficiently
6. Pareto optimality
a. Society’s welfare has been maximised such that no one can be made better off
without someone else made worse off
b. Realistically impossible
c. Use Pareto improvement for when
i. You move from a point inside the PPC to a point closer to the boundary
ii. When the policy results in a welfare gain
7. Production possibility curve
a. Show all the combination of two goods a country can produce
b. Assumption
i. The country only produces two goods
ii. The boundary of the PPC is a result of all resources being fully and efficiently
utilised
c. Uses
i. To show improvement in productive capacity
• Shift boundary of PPC outwards
ii. To show recovery/ improvement in efficiency
• Movement from a point inside the PPC to a point closer to the
boundary

Done by Nickolas Teo Jia Ming

iii. To illustrate the concept of opportunity cost and choice
• Convex curve due to increasing opportunity cost
o The additional, alternative resources used is not as suitable
for the production of the good
• Concave curve due to decreasing opportunity cost
o Due to specialisation
iv. To show the trade-off between producer and consumer goods
• More producer goods = bigger shift outwards in PPC over time
• More consumer goods = greater current quality of life

Done by Nickolas Teo Jia Ming

Unit 2 answering skills (Resource allocation in competitive
markets)
Disclaimer: These notes are based on my opinion on how the questions should be tackled. Do take it
with a pinch of salt, and practice to see how they are applied.

1. Possible Demand and Supply questions

a. Find the changes in price and quantity
b. Find the changes in total revenue and expenditure
c. Assess the impact on consumer and producer surplus
d. Determinants of elasticity, demand and supply
e. Impact of policies
i. Effectiveness
ii. Who benefits more from subsidy, burden of tax
2. Demand curve downward sloping due to the law of diminishing marginal utility
a. Less utility is gained from consuming an additional unit of a good or service
3. Explaining changes in demand and supply
a. Demand changes due to
i. Population
ii. Taste and preferences
iii. Price of related goods
iv. Changes in income
v. Changes in population statistics
vi. Expectation
vii. Seasonal changes
b. Supply changes due to
i. Number of producers
ii. Spare capacity
iii. Time
iv. Prices of related goods
v. Expectations
c. Explain by linking determinants to effect
i. When population rises, more of ___ (final product) is demanded, hence the
demand for ___ (feedstock) rises as it is essential for the production of ___
(final product)
ii. When taste and preferences change, people desire ___ as it is fashionable/
better suited to their needs. Hence the demand for ___ increases
4. Elasticity
a. Price elasticity of demand
i. Degree of responsiveness of quantity demanded of a good to a change in its
price
ii. Useful only when supply curve shifts
iii. Determinants
• Nature of good

Done by Nickolas Teo Jia Ming

 o Necessity is inelastic
o Luxury is elastic
• Proportion of income spent on it
o Small proportion is inelastic
o Large proportion is elastic
b. Price elasticity of supply
i. Degree of responsiveness of quantity supplied of a good to a change in its
price
ii. Useful only when demand curve shifts
iii. Determinants
• Factor mobility
o More mobile factors can easily leave or enter the industry
Supply price elastic
• Existence of spare capacity
o Spare capacity allows output to be easily increased in times
of need  Supply price elastic
• Ability to stockpile goods
o Can stockpile  Easily respond to changes in demand 
Supply price elastic
c. Income elasticity of demand
i. Degree of responsiveness of demand of a good to a change in consumer’s
income level
ii. Determines extent of shift when incomes changes
iii. Determined by nature of good
• Normal necessity
• Normal luxury
• Inferior
d. Cross elasticity of demand
i. Degree of responsiveness of demand of a good to a change in the price of a
related good
ii. Determines extent of shift when price of a related good changes
5. When asked to explain the impact of elasticity, show the effect in both cases of elastic and
inelastic
a. Draw both on the diagram
6. When asked to compare the elasticity
a. Give definitions and examples
b. Explain differences in sign
c. Explain meaning of magnitude
d. Explain differences in uses
7. Price fluctuation has two parts
a. Frequency
i. Nature of supply
• Primary industry is unpredictable
• Manufactured is more reliable

Done by Nickolas Teo Jia Ming

 ii. Nature of Demand
• Recovery and recession of cyclic demand
b. Extent
i. Price and income elasticity
ii. Cross elasticity depends on context
8. Impact of fluctuations
c. Unstable income
i. Affect standard of living
d. Affects investment prospects
e. Affects consumer choices
9. When asked to use demand and supply to explain changes in price and quantity
f. First think about the final demand and supply
i. Look at extract or preamble
g. Then identify what demand and supply changes will explain the change
h. Finally check if the extract or preamble states which effect has a larger extent

Done by Nickolas Teo Jia Ming

Unit 3 answering skills (Market failure and government
intervention)
Disclaimer: These notes are based on my opinion on how the questions should be tackled. Do take it
with a pinch of salt, and practice to see how they are applied.

1. Don’t draw both externality of production and consumption in the same diagram
2. Definitions
a. Externalities
i. Side effects, from the production or consumption of a good, that affects the
welfare of a third-party, who neither pays nor receives compensation for
that effect
b. Imperfect information
i. Consumers and sellers have limited information or understanding of the
good they are buying or selling
c. Factor immobility
i. Geographical
ii. Occupational
d. Market failure
i. When society’s welfare is not maximised due to the over or under-allocation
of resources into the production or consumption of a good or service
ii. Two types
• Complete
 No provision of public good
• Partial
 Under or over allocation of resources
3. Need to clearly state who are the third-parties and exactly what is the spill-over effect
4. When explaining why public or merit good causes market failure, you need to include why
the government should intervene to provide this good, or increase the production of the
good
5. When showing the welfare loss, need to say why it is a loss
a. At the output/ consumption below the socially optimum level (Qs), the benefit of an
additional good produced/ consumed is greater than its cost
b. Hence, a welfare loss is incurred when the producers produce less than Qs, as the
maximum welfare is not achieved due to underproduction/ underconsumption
6. Positive externality of consumption
a. Define
i. When the consumption of a good benefits the welfare of a third-party, who
does not pay compensation for the effect
b. Example
i. As people get vaccinated, they are unlikely to pass on the disease to other
nearby people, which improves the general health level of society as less
people overall fall sick
c. Draw diagram

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 i. Show divergence between MPB and MSB by MEB
ii. Show socially optimal output
iii. Show market equilibrium
iv. Show welfare loss
d. Explanation
i. There is a divergence between the MPB and MSB, due to the positive MEB
caused by the general improvement of society’s health
ii. Thus, assuming there are no externalities of production, while the free
market produces at Q1, it is less than the socially optimum level of Q2.
iii. This under-allocation of resources for the production gives rise to a welfare
loss of area abc
iv. Hence, market failure occurs as society’s welfare is not maximised
7. Negative externality of production
a. Define
i. When the production of a good harms the welfare of a third-party, who
does not receive compensation for the effect
b. Example
i. Polluting dirt particles from heavy steel factories that harms the surrounding
populations, as they suffer from lung irritation and have a higher risk of lung
cancer
c. Draw diagram
i. Show divergence between MPC and MSC by MEC
ii. Show socially optimal output
iii. Show market equilibrium
iv. Show welfare loss
d. Explanation
i. There is a divergence between the MPC and MSC, due to the negative MEC
caused by pollution
ii. Thus, assuming there are no externalities of consumption, while the free
market produces at Q1, it is greater than the socially optimum level of Q2.
iii. This over-allocation of resources for the production gives rise to a welfare
loss of area abc
iv. Hence, market failure occurs as society’s welfare is not maximised
8. Imperfect information/ asymmetric information
a. Moral hazard
b. Adverse selection
c. Market power
i. Firms know more than consumers and can exploit them
d. Externalities
i. People are unaware of the side effects on third parties
e. Merit/ demerit goods
i. Government knows more about the effects, and tries to influence
consumption
f. Solutions
i. Consumer protection

Done by Nickolas Teo Jia Ming

 • Anti-trust laws
• Bans against misleading advertising
ii. Education campaigns
• Health risk on cigarette packs
9. Factor immobility
a. Occupational labour immobility
i. Underutilisation of labour due to mismatch of skills
• No productive efficiency
ii. Solutions
• Retraining
• Curbing trade unions
• Reducing minimum wage
b. Geographical labour immobility
i. Workers unwilling to travel to work
• Too far to travel
• Hesitant to relocate family
ii. Solutions
• Improve transport infrastructure
 Buses more frequent and faster
 Trains more reliable and cheaper
• Subsidise firm’s shuttle services

Done by Nickolas Teo Jia Ming

Unit 4 answering skills (Firms and how they operate)
Disclaimer: These notes are based on my opinion on how the questions should be tackled. Do take it
with a pinch of salt, and practice to see how they are applied.

1. Market power is the ability for firms to reduce output to raise prices and earn more profit
a. Keyword is ability, as they might not do so due to other firm objectives
2. Categories to compare market structures
a. Number of firms
b. Type of product
i. Substitutability
c. Information available
i. Imperfect
ii. Perfect
d. Barriers to entry
i. Natural
ii. Artificial
e. Price discrimination
f. Non-price competition
i. Advertisements
ii. Differentiated products
• Physical
• Image
g. Price determination
i. Monopoly demand curve
ii. Kinked demand curve
iii. PC demand curve
h. Profits
i. Super normal
ii. Normal
iii. Sub normal
i. Equity
i. Supernormal profits
• Redistribution of income
• Transfer of welfare
ii. Price discrimination
j. Research and innovation
k. Variety
i. Homogenous
ii. Differentiated
l. Efficiency
i. Allocative
ii. Productive
m. Economies of Scale
3. Small firms vs large firms argument

Done by Nickolas Teo Jia Ming

 a. Supply reasons
i. Availability of economies of scale
• State type
• Lower production costs as firm size approaches the MES
o Cost savings can be passed on to consumers through a lower
price
o Quantity of product also increases, allowing more wants to
be fulfilled
• MES occurs early at low output results in survival of small firms
b. Demand reasons
c. Impact on society
i. Price discriminate
• Charge different prices in different markets for the same drug,
based on the ability to pay of consumers in each market
o Increase allocative efficiency
o Transfers consumer surplus to producer
 Inequitable
ii. Restrict output to raise price
• More Supernormal profit that enables R&D and innovation
o Increased productive efficiency
o New products causing product differentiation
 Boosts variety
• Allocatively inefficient as P > MC
o Value of good to consumer is greater than value of good to
producer, hence there is still welfare to be gained from
increased output
o Welfare loss
• Consumer exploitation
o Transfer of welfare from consumer to producer
o Less variety if firm does not differentiate its products
iii. Less competition, due to higher barriers to entry from predatory pricing
• X-inefficiency
• Higher chance of collusion with other firms to increase profits
4. When asked about pricing decisions, also state that the factors decides output as well
5. When talking about profit-maximising output at MC=MR
a. Need to say why at other points is not maximum profits
i. MC > MR
• More profit to be gained when output is reduced
ii. MR > MC
• More profit to be gained when output is increased
6. When drawing market structure graphs, state the assumption that the market is unregulated
and firms are profit maximising

Done by Nickolas Teo Jia Ming

7. If talking about big firms being able to have cost saving from reaping economies of scale,
need to assume that it is passed on to consumers in the form of lower prices if talking about
benefits
8. When talking about price discrimination
a. Define
b. Identify type of discrimination
c. Test to see if it fulfil the conditions for price discrimination
i. Market power
ii. Different groups of consumers
iii. Able to segregate markets
iv. Able to limit seepage
v. Same good
9. To tackle the harms of a monopoly
a. Nationalisation
b. Privatisation with regulation
i. Marginal cost pricing
• Socially optimal
• Loss incurred
o Need government subsidy or two part tariff
ii. Average cost pricing

Done by Nickolas Teo Jia Ming

Unit 5 answering skills (How the Macroeconomy works)
Disclaimer: These notes are based on my opinion on how the questions should be tackled. Do take it
with a pinch of salt, and practice to see how they are applied.

1. The AE/Y curve shows:

a. Multiplier effect
i. Step up diagram
b. Inflationary and deflationary gap
i. Relative to the full employment equilibrium
c. Injections and withdrawals
i. Shifts in AE
d. Components of AE (C + G + I + X-M)
e. Explain the equilibrium model of NY
i. When below equilibrium, AE > Y (Output)
• Expenditure increases to
ii. When above equilibrium, Y > AE
2. The AD/AS curve shows:
a. Full employment
i. Perfectly inelastic portion of AS
b. High, sustained economic growth
i. Actual growth
• Movement of AE
ii. Potential growth
• Movement of AS
c. Components of AD (C + G + I + X-M)
3. A change in autonomous consumption (a) and injections (I,G X-M) shifts the AE/AD function,
while a change in MRT, MPM, MPS pivots the AE function.
a. Increase in MRT, MPM or MPS makes AE more elastic
4. Aggregate supply is affected by
a. Technological improvements
b. Investments in capital and labour
c. Quantity and quality of factors of production
5. Stagflation
a. It is when the economy faces both increase unemployment and rising inflation
b. Caused by a decrease in aggregate supply
i. AS shifts upwards, as it is only in the SR
ii. Caused by an increase in the price of the factors of production
• Wage raise
• Capital becomes scares due to low saving rates
6. Investments
a. Has multiple effects
i. SR
• AD increase
• GPL and GDP increases

Done by Nickolas Teo Jia Ming

 • Unemployment falls while inflation rises, and actual growth occurs
ii. LR
• AS increase
• Real national income rises while GPL falls
• Actual growth and lower inflation
iii. BOP
• Capital and financial account improves in SR
• Current account worsens in LR
o Due to outflow of profits
o Counted under income transfers
7. Terms of trade
a. Definition
i. It is the ration of the prices of exports to the prices of imports
ii. It represents the ability to buy imports with exports
b. Explanation
i. When TOT improves, it is due to
• Price of exports increasing
• Price of imports decreasing
• Both
• Which in turn is dependent on the D&S of the X and M, and their
elasticity.
ii. Hence the country can obtain more imports from a given amount of exports
8. Interest rate
a. It is the money earned from saving money in banks, and affects the opportunity cost
of consumption as well as the level of borrowing by firms and consumers
9. How something affects the circular flow of income
a. Define circular flow of income
i. It is the expenditure by consumers on goods and services produced by firms
in the product market
ii. The firms then spend their money on the factor of productions, which are
land, labour, capital, and entrepreneurship, in the factor market, through
rent, wages, interest and profits
iii. There are injections into the circular flow by banks, government and
foreigners, in the form of investment, government expenditure and export
respectively. These will expand the circular flow of income
iv. There are also withdraws caused by households saving part of their incomes
in banks, or paying government taxes or on imports from foreigners. These
withdrawals shrink the circular flow of income.
b. Explain how the something affects the injection, withdrawals or consumer spending
10. Impact of lower circular flow of income on SOL
a. Less real national income, as firms lower wages and some people become
unemployed due to reduction in output
i. Less material SOL as citizens can afford less goods and services to fulfil their
wants

Done by Nickolas Teo Jia Ming

 ii. Less non-material SOL for the unemployed as they are upset at being
retrenched, and will be a burden on family and friends until they can find
employment
b. However, if the economy was near full employment
i. The fall in general price level could be greater than the fall in nominal
income, leading to a rise in real income, increasing the material SOL instead,
as people can consume more goods and services than before
c. Also, if the cause was government spending on areas that do not affect consumes
greatly, like defence
i. The incomes of citizens are not strongly affected, hence little change in
material SOL
d. Also, non-material SOL could increase, as the lower output would mean that
workers have shorter working hours, and can spend more time with their family
e. There are also other factors that impact the SOL other than national income, such as
i. Greater levels of innovations that increase the quality of goods and services,
as the bleaker economic outlook spurs firms to be more competitive to
retain their market share
ii. Government policies that can counter the effects of the lower national
income
f. Evaluation
i. Circular flow of income only useful in measuring material SOL
• Need other indicators like Gini coefficient, pollution index
11. Explain the multiplier effect whenever any component of AE/AD changes
12. Multiplier assumptions:
a. MPC is the same and constant for all households in an economy
b. The economy is in a state of less than full employment, having room for growth
c. A MPC values of 0.5 is assumed when answering questions
13. Long Multiplier explanation (Use ‘step-up’ diagram):
a. Initially the equilibrium NY is at NY 1
b. When there is a $100m *Change in AE*, planned spending/output exceeds
planned output/spending.
c. This shifts the AE function from AE 1 to AE 2 , as seen in figure 1.
d. Resulting in a depletion/build-up of firm’s inventory
e. Assuming that there are unemployed/employed resources available in the economy,
firms counter this change by increasing/decreasing their output by $100m, causing
NY to increase/decrease by $100m too, as seen from the movement from point a to
c in figure 1.
f. Assuming MPC is 0.5, half of the additional/subtracted $100m to
households will/will not be spent on domestic goods and services, while the
remaining $50m is/is not withdrawn through savings, taxes and imports.
g. The additional/reduced spending will create extra/less income for the suppliers of
the additional/subtracted domestic goods and services bought.
h. This process continues with each round, resulting in a long chain
of additional/reduced income, withdrawals and consumption.

Done by Nickolas Teo Jia Ming

 i. This process stops when the total change in withdrawals equals to the initial change
in AE
j. The equilibrium NY is now at NY 2 , $200m more/less than NY 1
k. Therefore the increase/decrease in AE aids/retards growth through the multiplier
effect as it increases/decreases NY by a larger then proportionate amount.
l. Hence influencing the policy decisions of the government
14. For a short multiplier paragraph
a. When the income of ___ increases, their expenditure will increase by a factor of the
marginal propensity to consume
b. This becomes the income for another party, who in turn spends more, to generate
more income for others
c. Thus, it creates a cycle, which results in the increase in real national income being
greater than the increase in ___

Done by Nickolas Teo Jia Ming

Unit 6 answering skills (National Income statistics)
Disclaimer: These notes are based on my opinion on how the questions should be tackled. Do take it
with a pinch of salt, and practice to see how they are applied.

1. Measure of economic performance

a. 4 aims
i. Economic growth
ii. Unemployment
iii. Inflation
iv. BOP
b. Non-economic indicators
i. Quality of life
ii. HDI
c. Relativity
i. Countries
ii. Time
2. Indication by GDP
a. When GDP increases
i. Higher output, income and expenditure
• Lower unemployment and higher economic growth
ii. If relatively higher than other countries, the country is performing better
b. Components
i. If consumption is high, but investment is low
• The country may have little potential growth
o Lead to demand push inflation
• Lower future actual growth
o Lack capital goods needed to sustain growth
c. Limitations
i. Does not take into account
• Components of output
o Defence expenditure
• Income distribution
o Material living standard not accurately reflected
• Non-material living standards
• Population size
• Inflation
3. Indication by BOP
a. It is the external performance of the country
b. When BOP surplus
i. Financial and capital account surplus
• Inward flow of I
o Greater future actual growth due to capital accumulation
o Increases potential growth
ii. Current account surplus

Done by Nickolas Teo Jia Ming

 • Boosts GDP due to (X-M)
iii. Other benefits
• Build-up of foreign reserves and wealth
o Economically strong and stable
c. When BOP deficit
i. Current account deficit
• Imports bring in foreign technology
o Boosts future actual growth
o Increases potential growth
ii. Financial and capital account deficit
• If due to investment in other countries
o More profits in future
d. For Singapore
i. Constant surplus
• Need to compare across years to determine progress

Done by Nickolas Teo Jia Ming

Unit 7 answering skills (Economic growth)
Disclaimer: These notes are based on my opinion on how the questions should be tackled. Do take it
with a pinch of salt, and practice to see how they are applied.

1. Economic growth is the rate of change of the country’s GDP

2. When stating the impact on actual economic growth
a. First state that NY increase or decreases
b. Hence there is actual growth or negative growth
3. When stating the impact on potential economic growth
a. First state that NY f increase or decreases
b. Hence there is potential growth or negative potential growth
4. Pros and cons of growth
a. Pros
i. More income  Greater SOL
ii. Less unemployment  Greater allocative efficiency
iii. Allows for income redistribution measures
iv. Promotes business confidence  More investment  Potential growth
b. Cons
i. Threat of inflation
ii. Might cause structural unemployment
iii. Damage of environment
iv. Widening income gap
v. Less non-material SOL

Done by Nickolas Teo Jia Ming

Unit 8 answering skills (Unemployment)
Disclaimer: These notes are based on my opinion on how the questions should be tackled. Do take it
with a pinch of salt, and practice to see how they are applied.

1. When evaluating the policy against unemployment

a. Consider the effectiveness of the policy against various types of unemployment
2. If GDP increases but unemployment increases as well, it is due to
a. Time lag in businesses adapting to recovery
b. How unemployment is calculated
3. Ideal unemployment rate
a. Non-Accelerating Inflation Rate of Unemployment
i. Below this level of unemployment, inflation sets in

Done by Nickolas Teo Jia Ming

Unit 9 answering skills (Inflation)
Disclaimer: These notes are based on my opinion on how the questions should be tackled. Do take it
with a pinch of salt, and practice to see how they are applied.

1. Types of inflation
a. Cost-push
b. Demand-pull
c. Core inflation
d. Headline inflation
2. Inflation is the rate of change of CPI
a. Thus don’t use ‘inflation rate’
3. When talking about the impact on inflation
a. State that the GLP increases or decreases first
b. Then state the inflation is being managed or worsening
4. For demand-pull inflation
a. State the assumption that the economy is near or at full employment
5. Singapore’s top 3 sources of inflation
a. Housing and transport
i. Top contributor as seen from big gap between core and headline inflation
• 2% difference
b. Wages
c. Imports

Done by Nickolas Teo Jia Ming

Unit 10 answering skills (International economics)
Disclaimer: These notes are based on my opinion on how the questions should be tackled. Do take it
with a pinch of salt, and practice to see how they are applied.

1. Consequence of small economy

a. Small domestic market
i. Firms need to export to have sufficient demand to reap EOS
b. Lacks many resources
i. Country need to import resources for production and consumption
2. To explain protectionistic measures
a. State change in price and quantity imported and domestically produced
b. For consumer and producer surplus, show
i. Old surplus
ii. New surplus
iii. Change in surplus
c. Show the Dead Weight Loss
d. Show the tax revenue or quota
e. If quota, show
i. What happens if the licences are sold
• Tax revenue for government
ii. What happens if it is given to domestic importers
• Adds to producer surplus
iii. What happens if it is given to foreign importers
• Welfare loss
f. Net effect on society
g. Evaluation
i. Compare with other methods like subsidies, tariffs or quota
ii. Decide on efficiency based on elasticity
3. Reasons for imports
a. Difference factor endowments
i. Comparative disadvantage
ii. Higher opportunity cost of producing domestically
iii. Cheaper to import
b. To gain technical knowledge
c. Focus is on another sector
i. Unable to produce imported goods as efficient as other countries
ii. Still need that good
iii. Thus import from other countries
4. Causes of comparative advantage
a. Differences in factor endowments
i. Assumes that factors are immobile
b. Leads to specialisation in the industry which the factor endowments are suited for
i. Singapore specialises in high-tech manufacturing, due to our skilled labour
and abundance of capital

Done by Nickolas Teo Jia Ming

 c. Thus opportunity costs fall, leading to comparative advantage
d. Factors that affect comparative advantage
i. Regulation
ii. Labour productivity
iii. Labour wages
e. How the factors they affect the comparative advantage
i. ___ affects the cost of production, hence there is higher/lower opportunity,
leading to a lower/higher comparative advantage
5. Explaining comparative advantage
a. Definition
i. It is the country with the lower opportunity cost relative to another country
b. Assumptions made
i. The countries only produce two goods
ii. The cost of production of each of the two types of goods is the same
iii. The good produced is homogenous
c. Calculation
i. Let the first good be 𝑥 units produced, and the second good be 𝑦 units
𝑦
ii. Opportunity cost of first good = 𝑥
𝑥
iii. Opportunity cost of second good = 𝑦
d. Answer structure
i. Which country has the lower opportunity cost
ii. Support with figures if possible
iii. State the assumptions
iv. State which country specialises in what due to lower opportunity cost
6. Effects of comparative advantage
a. Affects the supply of goods for trade
i. Trade and interdependence develops
b. Total output of the world increases when countries specialise
i. Consumption possibility increases
7. Explaining patterns of trade
a. Determinants of the supply of domestically-produced goods
i. Comparative advantage
• Due to different factor endowments affecting opportunity cost
ii. Government policies
b. Determinants of the demand for imported goods
i. Taste and preferences
• Variety
ii. Income
iii. Technological transfer
c. Illustrate with examples
i. Assumptions
• Only countries are present
• Only two goods are produced
• Constant returns to production

Done by Nickolas Teo Jia Ming

 • No transport or transaction costs
• Same amount of units of resources
8. Impacts of trade
a. Benefits
i. Consumption possibility increases
ii. Product variety increases
iii. Engine of growth
• Causes country to shift from labour intensive to capital intensive
industries
o Investments allows purchasing of capital, like machines and
better quality raw materials
• Promotes economic growth
o Changes the area of comparative advantage, due to
 Specialisation
 Better trained workforce
 Capital goods from investment
iv. Allows firms to reap EOS
• Lowers prices and increases productivity
v. Transfer of technology
b. Harm
i. Vulnerability to global instability
• GDP of export dependent countries falls during a global recession
ii. Structural unemployment
• Labour cannot keep up with shift to capital intensive industries
iii. Domestic firms cannot compete
• Other countries have comparative advantage
iv. Susceptible to dumping
9. Impacts of FDI
a. Benefits
i. Increases AD
• Multiplier effect
• Country imports more  Helps the country that invested, assuming
that their goods are exported to the FDI receiving country
ii. Lower unemployment
• Skilled workers benefit more as they are more supply price inelastic
iii. Transfer of knowledge and technology
iv. Improve productive capacity of economy
• Lowers the general price level when near full employment
v. Improves export as more goods are produced
b. Harm
i. Outflow of foreign firm’s profits
• BOP and exchange rate decrease
ii. Overdependence on FDI

Done by Nickolas Teo Jia Ming

10. When arguing the flow of hot money, you need to consider both exchange rate and interest
rate
a. If you want to only consider one, use ceteris paribus.
11. When looking at globalisation
a. Consider two effects
i. Increased trade
ii. Increased factor mobility
• Labour
• Capital
b. Consider the push and pull factors for factor mobility
i. Pull
• Tax holidays
• Policies to attract skilled labour
ii. Push
• Increased competition for foreigners leads to brain drain
• Outsourcing to countries with lower wages

Done by Nickolas Teo Jia Ming

Unit 11 answering skills (International payments)
Disclaimer: These notes are based on my opinion on how the questions should be tackled. Do take it
with a pinch of salt, and practice to see how they are applied.

1. Trade usually involves comparative advantage, so need to explain it

2. When talking about exports, always includes imports, even if it’s just to say assuming that it
remains constant. And vice versa
3. How Free Trade Agreements affect the country
a. Bilateral. Multilateral and regional FTAs
i. Removes protectionistic barriers to trade
ii. Could have trade creation or diversion depending on after-FTA prices
b. Benefit
i. Increases net exports
• Aggregate demand increases  Economic growth
• Balance of payments improves
c. Harms
i. Increased vulnerability
• Global shocks will impact economy, as trade suffers
• Reliant on export industry, so big trouble during recession
ii. Transfer to technology
• Allow other countries to gain knowledge of innovative products and
methods
• Weakens comparative advantage as they become more efficient
4. Impact of BOP on exchange rate
a. State BOP surplus or deficit
b. State payment or receipts more
c. State demand or supply for currency increase or decrease
i. Draw graph
ii. Y axis: Price of *own currency* in *another currency*
d. Presence of upward or downward pressure
e. Impact depends on exchange rate system
i. Freely floating or managed
• Result in appreciation or depreciation
ii. Fixed
• Impact on international reserves
5. For questions regarding MAS gradual appreciation of Singapore currency
a. Singapore does not fulfill MLC
i. Singapore’s PED for import is less than 1, as inputs imported are essential
for firms
ii. Singapore’s PED for exports is less than 1, as we export high-end goods like
refined oil and chemicals, that have an inelastic demand as it is used in many
activities
b. The constant gradual appreciation keeps Singapore in the short run, thus the long
run is not considered

Done by Nickolas Teo Jia Ming

 c. Singapore’s currency is undervalued, hence we have a large foreign reserve for
gradual appreciation
6. To argue about Singapore fulfilling MLC
a. First state that usually MLC is fulfilled, and state it’s effects
b. Then say that Singapore is a unique case

Done by Nickolas Teo Jia Ming

Unit 12 answering skills (Macroeconomic policies)
Disclaimer: These notes are based on my opinion on how the questions should be tackled. Do take it
with a pinch of salt, and practice to see how they are applied.

1. Stagflation
a. When there is an increase in the CPI (not inflation rate) and an increase in the
unemployment level (number of people unemployed)
2. Usage of policies
a. FP targets internal problems
i. Economic Growth
ii. Inflation
iii. Unemployment
b. Exchange rate policy target external problems
i. BOP
c. Supply side policy targets all problems in the long run
3. When asked to evaluate the policies used
a. State the cause of the need for the policies
i. Market failure
ii. 4 government aims
b. State what policies can be used
c. Elaborate on how the policy tackles the problems
d. Drawbacks on policy
e. Evaluation on which policy is better
4. Exchange rate affecting BOP
a. When the currency depreciates
b. Price of exports decreases, price of imports increase
c. In the short run, the sum of the demand price elasticity of exports and imports is less
than 1, thus the MLC is not fulfilled
d. This causes the net exports to fall, worsening the BOT and hence BOP
e. But in the long run, the sum of the demand price elasticity of exports and imports is
greater than 1, thus the MLC is fulfilled
f. This causes the next exports to rise, improving the BOT and hence BOP
5. Impact of budget balance
a. Deficit
i. Government expenditure is greater than revenue from taxes
• Spend on infrastructure, training, subsidies etc.
ii. Expansionary fiscal policy
• Aggregate demand increases
o General price level may increase
 Export prices increase
 Export less competitive
∝ Extent depends on elasticity
∝ More elastic More loss in quantity traded
o National income increase

Done by Nickolas Teo Jia Ming

  More import demand through marginal propensity
to import
∝ Worsens BOP
o Output (and employment) increase
 More excess goods to export
 Less imports needed
 See impact of supply curve on world trade graph
• If spent on supply policies
o Higher future GDP  Greater material SOL
iii. Borrow to finance spending
• Higher tax rate for future generations
• Less real national income  Less material SOL
iv. Use reserves
• Short-run measure
v. Crowding out effect as government borrow from banks
• Higher interest rates as demand increase
• Less investment and consumptions
• Less real national income  Less material SOL

Done by Nickolas Teo Jia Ming

Econs evaluation skills
Disclaimer: These notes are based on my opinion on how the questions should be tackled. Do take it
with a pinch of salt, and practice to see how they are applied.

Make sure that your evaluation answers the question!

Possible categories

1. Necessary evil
2. LR/SR effects
3. Impact on DC/ LDC
4. Make suggestions / judgments
5. Government failure
a. Difficulty in measuring MEB/MEC
b. Difficulty in determining adequate price floor/ celling
c. Inefficient (allocative and productive) in government provision without profit
incentive
6. Multi-pronged approach
a. Say that the problem is complex, hence need many ‘prongs’
b. Need to state exactly what are the ‘prongs’
i. E.g. LR and SR method
7. Test assumptions
a. Do firms really transfer cost savings to consumers
8. Empathy
a. Cost benefit analysis of people affected
9. Problems with measurement
a. Inaccurate
b. Does not take into account time lag
10. Relevance to the country
a. Small or big economy
b. Open or less open economy
c. Does it correspond to the aims of the economy
d. Will the drawbacks be more or less severe due to the nature of the country
11. Sustainability of policy
a. Debt from borrowing
b. Depletion of foreign reserves
c. Political ramifications
12. For microeconomics
a. Equality vs equity

Done by Nickolas Teo Jia Ming

Real life examples for Economics
Scarcity, choice and Opportunity cost:
• Oil
o Scarcity
 Earth is thought to hold 2 trillion barrels of oil initially
 Half has already been consumed
o Choice
 Oil has many alternative uses
 Products from a typical barrel of US oil
 46% for gasoline
 26% for diesel and other fuel
 11% other products
 9% jet fuel
 4% heavy fuel oil
 3% asphalt
 1% lubricant
 In India, crude oil supplies about 40% of their energy needs
 3% for asphalt
 10% for jet fuel
 18% as petrochemical feedstock (for chemicals, plastics etc.)
 23% for heating oil and diesel fuel

Market system:
• China, once a command economy, is now more like a free market economy
o In 2010, China had about 10 million small businesses
o However, key resources industries are still dominated by public firms. 159 Large
state-owned enterprises (SOE) (Unlike Singapore’s Government Linked organisations
(GLO))
 Utilities, heavy industries, energy resources
o Advantage
 In 1960, 60% of Chinese were employed in agriculture. By 2000, less than 30%
were employed in Agriculture
 Move to higher-income, more stable jobs in the secondary and
tertiary industry  Better standard of living
 Now it is the world’s fastest growing major economy
 Average growth rate of 10% over the past 30 years
 Nominal GDP rose, from 67.9 billion Yuan in 1952 to 18232.1 billion in 2005
 Poverty rate fell from 53% in 1981 to 2.5% in 2005
o Disadvantages
 Large gap between rural and urban areas
 Low equity
 Pollution

Done by Nickolas Teo Jia Ming

  Air pollution measured by PM2.5 was over 500 (called ‘beyond
index’) in November 2010, February, October, December 2011
 E-waste on 2.3 million tonnes in 2011, second largest in the world.
 A 2007 World Bank report states that outdoor air pollution causes
350,000 to 400,000 premature deaths a year. Another 300,000 from
indoor air pollution

Elasticity:
• Price elasticity of demand
o Fast food is demand price inelastic
 From a research article, 10% increase in price of fast food caused a 5.7%
lower frequency of weekly fast food consumption
o Food elasticity can be measured by proportion of income spent on it
 India’s household food budget is 56% of income, the UK is 15%, the US is 12%
o UK price elasticity of demand in 1992
 Fresh meat = 1.4
 Spirits = 1.3
 Cereals = 1.0
 Durable goods = 0.9
 Beer = 0.5
 Tobacco = 0.5
 Bread = 0.0
o According to a meta-analysis of 86 studies in 2001, tobacco products in Australia
have a mean price elasticity of -0.48
o In US, from a meta-analysis in 1996, in the short-run (below 1 year), gasoline has an
average demand price elasticity of -0.26. Long run is -0.58.
• Price elasticity of supply
o Oil
 Between 2002 to 2006, 0.05 for the world, 0.09 for OPEC
 Between 2006 to 2010, 0.02 for the world, -0.03 for OPEC
 Between 2007 to 2008, 0.01 for the world, 0.04 for OPEC
o From wiki
 1.61 in the short run for Gasoline
 7.0 in the long run for tobacco
 1.6-3.7 in the long run for housing
• Income elasticity of demand
o From wiki
 Automobiles (2001) = 2.98
 Books = 1.44
 Restaurant meals = 1.40
 Tobacco = 0.64
 Margarine = - 0.20
 Public transportation (2008) = - 0.36
 A persons own life (value of life) = 0.5 to 0.6

Done by Nickolas Teo Jia Ming

 • Cross elasticity of demand
o From wiki, data from 2008
 Margarine price change against butter demand = +0.81
 Pork price change against beef = +0.28
 Food price change against Entertainment = -0.72

Market failure:
• Examples of externality
o Negative
 Air pollution
 Affects farmers (affects crop quality), public health (more likely to
fall sick), and old buildings (acid rain degrade buildings)
∝ Air pollution causes necrotic lesions in crops, reducing their
growth
∝ Urban outdoor air pollution causes about 1.3 million deaths
worldwide yearly
∝ Famous buildings like Taj Mahal, Notre Dame, the
Colosseum, which are made out of limestone and calcareous
stones are hard hit by acid rains, and need constant
renovation
 Overfishing
 Leads to Tragedy of the commons
∝ Depletion of a shared resource by individuals, acting
independently and rationally according to each one's self-
interest, despite their understanding that depleting the
common resource is contrary to their long-term best
interests.
∝ Aka market failure
 Excessive antibiotics
 Leads to resistance in bacteria.
o Positive
 Network effect (can link to EOS)
 When an individual buys a product that is part of a network (e.g.
WhatsApp), he increases the usefulness of the product to others
who also have it (They can text more people for free). Thus, each
new user increases the value of the same product owned by others.
 Knowledge spill over (assuming it’s public domain and not under patent)
 Renewable energy
 Benefits world as it reduces net environmental pollution

Government regulation:
• Market power
o Key Performance Indicator

Done by Nickolas Teo Jia Ming

  SingTel was fined for poor service when there was a disruption of the EPL
broadcast
o Need to consult with government organisations when raising prices of necessities
like bus and train fares

Market structure:
• Monopoly
o Utilities
 PUB
 Government owned
 Singapore Power
 Government-linked company
• Oligopoly
o Telecommunication
 SingTel
 Starhub
 M1
o Transport
 SMRT
 SBS

Taxes:
• Carbon Emissions-Based Vehicle Scheme (CEVS) to tax vehicles for their pollution emitted
o Tax on consumption of vehicles
• Tax revenues accounted for 91.2% of the government’s operating revenue in 2010
o Income tax contributed 45%
o GST contributed 19%

Inequality:
• Gini coefficient from 0.425 in 1980 to 0.481 in 2000
• GST offset package in 2007, a form of transfer payment, to help lower income households
with the increased GST
• CPF contributions for elderly workers are lower
o Greater employability as firms have to pay less contribution to CPF
o Greater take-home pay, as less of the income is transferred to CPF account

Fiscal policies:
• Resilience package in 2010
o $20.5 billion

Done by Nickolas Teo Jia Ming

Supply side policies:
• Capital
o SPRING Singapore
 Funding for SME, 70% by SPRING, 30% by banks
o Economic Development Board
 Attracts FDI
o IE Singapore
 Encourage overseas expansion
o Transport network
 8 MRT lines in Singapore by 2020
• Labour
o Workforce Development Agency
 Handles employment policies and laws
 Aims to alleviate structural unemployment
 Workfare Income Supplement scheme
 Workfare Training Support scheme
o Tripartite system
 National Trades Union Congress
 Ministry of Manpower
 Singapore National Employers Federation
o Flexible wage system
 Consists of
 Basic wage
 Monthly variable
 Annual variable
 Combat sticky down wages
 Increase elasticity of AS
 Less inflation when AD increases
• Land
o Release of government land
 For building 14,200 homes
 Increase supply to lower prices to fight inflation
o Additional stamp duty for people buying houses
 10% for foreigners or corporations buying residential property
 3% for PRs buying their second home and above
 3% for Singaporeans buying their third home and above
 Increases the housing prices to lower the demand for houses

Globalisation:
• Outsourcing
o Singapore outsources the interpretation of X rays to India’s radiologists, in a process
called teleradiology, cutting down healthcare costs in Singapore
• Trade

Done by Nickolas Teo Jia Ming

 o Singapore is ranked to have the most open economy for international trade and
investment
o The value of trade in Singapore is 3 times the GDP
• Labour
o Singapore’s labour is ranked among the Top 5 in Asia
• Free Trade Agreements
o 18 regional or bilateral FTAs, with 24 trading partners (countries)
o Regionals like the ASEAN Free Trade Area
o Bilateral like China-Singapore Free Trade Agreement (CSFTA)

Case studies:
• Global Financial Crisis (2007 - now)
o Caused by the bursting of the US housing bubble (subprime mortgage crisis)
 Caused by expectation of housing prices to rise
 Median sale price in 2007 was USD$250,000
 Average sale price in 2007 was USD$310,000
 And high bank expectation led to easy loaning
 Financed risky (subprime) loans, with mortgages as security
o Price not rising as expected  People lose money  Cannot repay loans  Banks
lose money  Credit crunch as banks tighten lending policy (no rise in interest rates)
 Less loans made  Less investment and consumption  Multiplier effect
o When America sneezes, the world catches a cold
 American spend less  Export of countries all fall  Multiplier effect
o Idea of ‘Too big to fail’
o Impact on Singapore
 9900 investors affected by Lehman Brothers collapse
 3900 investors got back $107 million, after a ‘misleading sale’ (Agents did
not clearly specify the risks) probe
 Non-oil domestic exports declined 7.9 per cent in 2008
 FDI inflows declined by 32 per cent in 2008, after reaching a historic peak of
S$48 billion in 2007.
 Singapore’s domestic economy contracted by 0.5% in the third quarter (Q3)
of 2008 year-on-year
• Euro Debt Crisis (2009 – now)
o Started in Greece
 Unsustainable public sector wage and pension commitments drove debt
increase
 Housing bubble caused banks to accumulate private debt
 Bailout from government transferred private debt to sovereign debt
o Policies to tackle crisis
 750 billion euro given to the newly created European Financial Stability
Facility (EFSF) on 9 May 2010
 Goal is to address the crisis by providing financial assistance to
Eurozone states in financial difficulty

Done by Nickolas Teo Jia Ming

  Raised funds through bonds
 Irish bailout of 85 billion euros
 Portuguese bailout of 78 billion euros
 European Fiscal Compact signed on 2 March 2012
 Not yet in effect, in effect when:
o The first day of the month following its ratification by the
twelfth Eurozone member
o 1 January 2013
 All ratified member states must enact laws that places their national
budgets in balance or surplus
o Raise taxes, cut spending
 European Central Bank
 Lower interest rates
o Interest rate lowered to 0.75% in July 2012, going below 1%
for the first time
o Was at 2.0% in February 2009
 Providing private banks in weaker countries with cheap loans of
more than one trillion euros
 Euro Plus Pact adopted in March 2012
 Aims to foster competitiveness
o Deregulating industries
o Improving infrastructure and education
o Abolishing wage indexation
 Where wages rise to maintain purchasing power of
income in times of inflation
 Aims to foster employment
o Lowering taxes on labour
 Aims to contribute to the sustainability of public finances
o Cut government spending on pensions, health care, social
benefits etc.
 Aims to reinforcing financial stability
 As of 15 November 2011, Estonia, Greece, Ireland, Malta and Spain
are the top 5 reformers.
o Impact on Singapore
 If euro crisis worsens, Singapore will be among the worst-impacted in Asia
 Export to Eurozone is 12% of our GDP
 Second only to Hong Kong in private sector holdings of Eurozone
debt and equities
o Aka we bought Eurozone bonds
• US Twin Deficits
o US runs both a fiscal and current account deficit
 Government expenditure more than revenue
 Deficit of USD$1.3 trillion in 2010
 Imports more than it exports
 Deficit of USD$40 billion in 2010

Done by Nickolas Teo Jia Ming

• China-US Trade Spat

Done by Nickolas Teo Jia Ming

Singapore Stats:
Population: 5.2 million, 3.3 million Singapore citizens

2008 2009 2010 2011

Inflation rate (%) 6.6 0.6 2.8 5.2

Balance of 19 16 57 21
Payments
(S$ billion)

Current account 37 44 76 72
(S$ billion)

Capital and -22 -33 -17 -50

Financial account
(S$ billion)

Unemployment 2 2.1 3 2.2

(%)

Economic Growth 4.9 14.8 -1 1.7

(%)

GDP @ 2005 251 249 286 300

prices (S$ billion)

• Latest stats:
o Inflation
 Core : 2.7%
 Headline: 4.7%

Core inflation for Singapore for the past 10 years is around 1.8%

Done by Nickolas Teo Jia Ming