H1 Economics Preliminary Examination 2010 Mark Scheme Question 1

(a) Describe the changes in house prices in Singapore from 2005 to the end of 2008. House prices increased at an increasing rate from 2005 to 3rd qtr of 2007 and then increased at a decreasing rate till 2nd qtr of 2008. From the 2nd qtr to the end of 2008 house prices fell. (b) Explain the likely value of the price elasticity of supply of houses in Singapore. The supply of houses is likely to be price inelastic. PES is less than 1. (1 mark) With a rise in the house prices due to the increase in demand for houses, the quantity of houses supplied is not able to increase readily as new projects take at least 3 years to complete and new and ready properties may not be released by developers who may hold back launches as they expect prices to increase further in the near future. (2 marks) (c) With the help of a diagram, explain how high global fuel and commodity prices resulted in inflationary pressures in the country. High global fuel and commodity prices high cost of production since Singapore is reliant on imported fuels and commodities in its production process  AS increases  AS shifts to the left  AD exceeds AS , hence exerting upward pressure on the general price level  cost push inflation. AD-AS diagram to show cost push inflation is required Diagram ---1 mark Explanation --- 3 marks (d) Using economic analysis, explain how inflationary pressure and the financial crisis have affected house prices. Inflation rate increased due to rising global fuel and commodity prices cost of production increased  AS shifts to the left The global financial crisis resulted in world wide fall in income  Xs fell  AD shifts down The combined impact of the shifts in the AS and AD  economy contracts. This caused workers to be retrenched and unemployment rate rose. The rise in the unemployed numbers would mean that some people would not be able to meet their mortgage repayments and would have their houses repossessed  supply of houses increased in the market. This increase in supply coupled with low demand as people are less confident [6] [4] [2] [2]


Houses are a form of wealth for most people. A relaxation of foreign ownership rules on apartments would make it easier for the significant number of expatriates working in Singapore and foreigners to purchase houses  demand for houses increases quantity transacted increases and house prices increase significantly since supply of houses is in general price inelastic. Falling house prices  a decline in wealth  people become less confident about borrowing and spending  C falls  AD falls and the economy weakens with national income and employment level falling. Explanation of inflationary pressure and global financial crisis on the economy and relate to demand for and supply of houses --. Or An increase of the maximum loan-to-value ratio from 80% to 90%  people can obtain more loans  demand for houses increases  quantity transacted increases and house prices increase significantly since supply of houses is price inelastic. A change in house prices has a significant impact on consumer wealth and consumer confidence hence consumer spending is affected. [3] [5] 2 .of their ability to pay up their housing loans or to meet mortgage requirements house prices fell. home owners would feel richer when house prices soar since houses are the biggest form of wealth for them.4 marks Analysis of changes in demand and supply and the impact on house prices --2 marks (e) Using the information provided in Extract 1. explain the impact of changes in house prices on the macro economy. Rising house prices allow home owners to remortgage their houses and have cash for spending. (f) (i) Explain one measure the Singapore government has taken to boost the housing market. Hence C increases stimulating the economy  national income and employment level would increase. Or A reduction of cash down payments from 10% to 5% for home purchase  demand for houses increases  quantity transacted in the market increases and house prices increase significantly since supply of houses is price inelastic. Max 2 marks if PES is not mentioned. Also.

tax policies and control of land supply.underconsumption of housing] To ensure a higher level of home ownership. discuss whether there is justification for intervention in the housing market. Microeconomic goals of the government: -allocative efficiency -equity Without government intervention. [Explain with the help of a diagram to show market failure --. resulting in under-consumption and hence allocative inefficiency. Most governments intervene in the housing market by building and selling new houses/flats and pricing them at affordable rates usually at a significant discount off the market value of similar dwellings. and tax policies like reduction of capital gains and property taxes would make homeownership attractive and hence raise PMB upwards towards SMB prices fall and the quantity transacted in the market would increase and welfare loss would then be reduced. There is therefore need to impose restrictions like ceilings on household incomes for eligibility to purchase and criteria for subsidies in order to better direct the assistance to the lower income group. Unless there is some form of government intervention. resulting in welfare loss to society. The market-clearing quantity would not be at the socially optimal level as the free market will not take into consideration the positive externalities (social cohesion and social stability) of homeownership. Since price of public housing is below the market price. it would be more efficient to leave market forces to determine the quantity and price of houses. demand will exceed supply. house prices must be made affordable. there will be under-consumption.(ii) With reference to the data provided where appropriate. and the microeconomic goals of the government. All governments are obliged to provide public housing through direct intervention in supplying housing and making them affordable to the lower income group. subsidies like housing grants and subsidized housing loans. or through indirect intervention in the form of subsidies. [8] 3 . To further improve affordability. Social marginal benefit (SMB) of housing exceeds the private marginal benefit (PMB) and the quantity transacted in the market is lower than the socially optimum. In the resale and private property markets. the price of houses and the quantity of houses transacted in the free market are determined entirely by the market forces of demand and supply. This helps raise homeownership.

This is especially helpful to the lower income group. people in the country acquire a store of value which they can encash in times of need. House value appreciates with the country’s growth. Hence. It is important for the government to watch the housing market and to act judiciously so as not to allow booms and busts in the market as instability in this market can affect the economy and the various income groups. there is a need for the government to keep watch over house prices and intervene to control the rapid increase in prices. providing some form of financial security. L1 Statements of microeconomic goals and descriptive 1-3 answer on either the general reasons for or the measures of government intervention without directly addressing the question L2 Clear explanation of market failure and rationale for 4-6 government intervention to achieve allocative efficiency and equity. Soaring house prices may lead to overheating in the economy and threaten stability. The right amount of subsidies to increase the consumption of housing to the optimal level is often difficult to ascertain. Measures such as tightening loans and releasing more land to build houses would decrease the demand and increase the supply of houses respectively preventing house prices from soaring to reach heights which would be beyond what the first-time buyers can afford.However. Some attempt to evaluate government actions. There is also the concern that achieving a high level of home ownership might mean that people are committing large proportion of their savings to housing resulting in the possibility of insufficient liquidity for old age needs. Therefore. Home ownership also protects the lower income group from rising rents in times of inflation. Through home ownership. the benefits of growth percolate to the lower income groups as well. There may be funding problem with the large amount of subsidies offered and the funds would be directed away from other development projects which can raise productive capacity and contribute to the economy’s growth. there is opportunity cost to be considered. a boom may result in high house prices and threaten the formation of an asset bubble in the country. While government intervention is needed and justified to ensure that home ownership is at the socially optimal level to maximize society’s welfare and that wealth is distributed to the lower income group as well. This contributes equity and social stability. L3 Thorough explanation on government intervention in the 7-8 housing market to achieve allocative efficiency and equity 4 . regular review of government housing policies to ensure that costs and benefits of government intervention must be appropriately balanced.

Question 2 (a) (i) Compare US trade balances with China and with the world for the period 2005 to 2008. hence reducing US trade deficit with China. However. the external value of the yuan in US$ had remained at 8. given that exports to China is a small proportion of her total exports and imports from China constitutes an even smaller proportion of her total imports. US trade balances with China and with the world were in deficit. suggesting that China had been offering the yuan to buy up US dollars. (b) Explain how the trend in China’s foreign reserves is affected by the changes in the indicators as shown in Table 3. (iii) Based on the data on US trade. it would not correct her balance of trade position. [4] [1] [2] [3] 5 .28. China’s foreign reserves rose over the period 2000 to 2008. From 2000 to 2004. The value of US’s net exports will increase if the Marshall-Lerner condition (i. even if there is improvement in her trade balance with China.e. The trade deficit with China increased throughout the period while the trade deficit with the world increased from 2005 to 2006 and then improved from 2007 to 2008. The surplus in the current account grew by more than 300%. Moreover. China’s exports would become more expensive in the US while imports from US would be cheaper in China. 2 marks for giving a brief explanation of how a change in each indicator can cause the reserves to increase. This resulted in significant currency flow and pushed up the reserves. 1 mark for each comparative statement (ii) How does the value of the Chinese currency in 2008 compare to its value in 2000? The Chinese currency appreciated against the US dollar. the yuan appreciated from 2005 onwards but US trade balance with China remained in deficit and the deficit continued to increase. resulting therefore in growth of foreign reserves. sum of price elasticities of demand for exports and imports is greater than 1). what evidence is there to suggest that a revaluation of the Chinese currency against the US dollar may not correct US trade imbalance? With a revaluation of the yuan.and evaluation of the actions. Answer arrives at a clear and reasoned conclusion.

as domestic producers are protected from competition from China  domestic production is stimulated  jobs are not just saved but more jobs can be created. There is claim that the undervaluation of the yuan has made Chinese goods much cheaper in the US  large influx of imports from China  trade deficit with China. resulting in reduced amount of Chinese tyres imported into US  improves US trade deficit with China. The call to increase tariffs on Chinese tyres is an attempt on the part of the US to correct the trade deficit with China. • Car manufacturing industry would experience higher cost of production due to increased domestic price of tyres after the imposition of tariff reduces supply of tyres. • US firms producing tyres in China and sell tyres back to US will be adversely affected  earnings from such overseas investment fall. Hence welfare is maximized if countries specialize in the production of the goods/services in which they have the lowest opportunity cost. • Protecting the domestic tyre industry may result in complacency and inefficiency. • Retaliation would result in a contraction in trade (China threatens to cut imports of US auto parts and chicken wings) no one wins as trade contracts  AD in both US and China would fall  unemployment in both countries US’s decision would hurt not just China but the US economy. • US consumers lose out as they have to pay higher prices on tyres whether imported from China or domestically producedwelfare loss. as US producers find it difficult to compete with the cheaper Chinese product.(c) Discuss whether the US government’s decision to boost tariffs on Chinesemade tyres can be justified in terms of economic theory. there would be lay offs  unemployment in the US. According to the Law of Comparative Advantage. This will result in increase in world output and the countries engaging in trade will also mutually benefit as both countries are able to consume beyond their production possibility curves. The imposition of higher tariffs on Chinese tyres would raise the price of imported Chinese tyres in the US. This is the basis of the argument in favour of free trade. In addition. a country should specialize and export the good/service that it has a lower opportunity cost in producing and imports the good that it has a relatively higher opportunity cost in producing than another country. Evaluation of the tariff proposal: • The decision to increase tariffs may not be very effective in correcting US trade deficit if the demand for Chinese tyres is price inelastic. Also. It is certainly not justified especially if China has the comparative advantage in producing [8] 6 . affecting US’s current account.

then the tariff would result in inefficient use of resources in the US leading to higher opportunity costs. expertise and knowledge  increase productive capacity in China  AS shifts to the right [4] [8] 7 . (I mark) Explanation for the direct relationship: When the surplus in the current account increases.tyres. it is likely that there is a surplus in the trade in goods and services account (trade in goods and services being the largest component in the current account) value of net exports increases AD increases  national income increases by a multiple via the multiplier. L1 Sketchy answer with some reasons why tariffs are imposed 1-3 and advantages and disadvantages of protectionism with hardly any reference to the context L2 Clear explanation of the reasons behind the imposition of 4-6 tariffs and the advantages and disadvantages with reference to the context L3 Discussion of the advantages and disadvantages of the tariff 7-8 proposal with application and reference to the context and the relevant economic theory (d) (i) Explain the relationship between China’s current account balance and its economic growth rate as observed in Table 3. Increase in China’s GDP is dependent on exporting to the rest of the world • Trade is an important factor contributing to China’s growth -China was the world’s second largest merchandise exporter in 2008 -large inflow of FDI in China resulted in increased trade conducted by these foreign-invested firms  export-led growth -when American consumer spending fell  Chinese exports fell as US is a major importer of Chinese goods AD fell  real GDP growth fell Other important factors contribute to the increase in China’s GDP • FDI flows is a major factor contributing to the increase in China’s GDP -foreign firms set up in China  AD increases  actual growth -foreign firms bring in technology. the growth rate increases and vice versa. Hence when there is an improvement in the current account. assess whether the increase in China’s GDP is primarily due to its rising exports to the rest of the world. (3 marks) (ii) With reference to the data where appropriate. If the US cannot produce tyres at a lower opportunity cost than China. There is in general a direct relationship between China’s current account balance and its economic growth rates.

China is increasingly aware of the need to stimulate domestic demand to achieve increase in her GDP. other factors also played a part in the growth in its GDP. Explanation of some factors contributing to the increase in China’s GDP with little evaluative comments and insufficient reference to the case. and arriving at a reasoned conclusion. Given that heavy reliance on external demand would increase the economy’s vulnerability and subject it to greater instability. Clear explanation and discussion of the factors contributing to the increase in China’s GDP with reference to the information in the case. the growing middle class in China has helped developed a larger domestic consumer market.LR potential growth • When the global economic crisis occurred and exports and FDIs decreased  Government policies were in place and were critical in preventing a contraction in the GDP Government policies like increased spending on infrastructural development  AD increases in the SR resulting in actual growth. Infrastructural development also enhances productive capacity and brings about growth in the LR Easy monetary policy  boost private spending  C & I increase  AD increases  national income increases by a multiple Assistance provided to various industries helps in enhancing efficiency and productivity resulting in increased output  industries continue to thrive More recently. This is especially significant in making China less dependent on external demand to grow her economy • • • • While exporting to the rest of the world contributes significantly to the increase in China’s GDP . L1 L2 L3 Mere listing or brief explanation of factors contributing to the increase in China’s GDP with hardly any reference to the case. 1-3 4-6 7-8 8 .

the economy experienced a recession . This led to a fall in investment spending which is another component of AD. (25) Analysis of Question: Command words: explain – clear explanation of how the global crisis caused recession. tourism. when fall in export revenue > fall in import expenditure. ( Explain using AD/AS diagram) 9 . financial. -in addition.eg. Development •Explain how the global crisis caused a fall in Singapore’s export. which is an important component of AD. ceteris paribus. port services as the purchasing power fell. recession. Thus the overall fall in AD due to a fall in export and investment caused a multiple fall in national output and income through the multiplier process. Thus. firms profit fell and business sentiments were adversely affected. Singapore was the first East Asian country to fall into a recession from the current global economic crisis after July 2008. -Global slowdown led to a fall in demand for Singapore’s export. net export will fall. •Explain how global crisis led to a fall in AD and national income .Due to fall in export revenue. policy measures Context: Singapore economy Introduction: Explain the meaning of recession and the impact on Singapore given the characteristics of the Singapore’s economy. This global economic crisis has led to a fall in Singapore’s real GDP and caused a recession in Singapore in 2009. as real national income falls. January 5th 2009 Explain how the current global economic crisis has caused the Singapore economy to fall into a recession and assess the effectiveness of the measures adopted by the government in solving the problem. Sandre Thangavelu. Key words: global economic crisis. Singapore being a very small and open economy which is highly dependent on trade. This led to a fall in demand for Singapore’s electronic consumer goods as well as a fall in demand for electronic components such as integrated circuits / disk drives etc which are the main manufacturing exports of Singapore. services sectors are also affected. suffered adversely from the global economic crisis which started in the USA. -thus. assess – analyse and judge the various measures used to solve the recession problem.Question 3 Despite an average growth rate of nearly 8 per cent from 2004 to 2007. A recession occurs when there is a fall in an economy’s real GDP for at least 2 consecutive quarter period. world’s demand for consumer goods fell. AD will fall. -as world income fell.

This leads to negative economic growth in Singapore. given our heavy reliance on trade and FDI. govt spending on infrastructure.Global recession has adverse effect on the Singapore economy. When govt spending increases. Govt uses both expansionary fiscal policy. Tax rebates given to households increase their disposable income which help to encourage households to spend on consumer goods. i) Explain the use of expansionary fiscal policy to mitigate the impact of recession Expansionary fiscal policy is one of the important policies adopted to stimulate AD to avert the recession. ceteris paribus. Evaluation: -poor sentiments of consumers and firms=> lower corporate tax rates and tax rebates may not boost C and I spending. govt spending of $4. -given Singapore’s high dependence on imports and high savings. Hence. national income and output will rise a multiple times. Thus with a rise in govt spending and increase in investment and consumption spending. affecting the standard of living of the citizens and worsened the BOP. Evaluation: -price competitiveness of exports may not be sufficient to increase demand for Singapore’s exports given the fall in purchasing power of foreign consumers due to the recession. health care and education ($4. this scheme may not be able to keep jobs if firm incur losses and labour cost is only a small proportion of total cost of production. it provided the incentive for firms to increase investment spending. reduction in corporate tax rate from 18% to 17%. Thus. Eg. which is a component of AD as lowering of corporate tax increased the after-tax profits of firms. the rise in national income will reduce the problem of recession caused by the fall in external demand. tax rebates to households. Eg. -given that Singapore is highly dependent on exports. any increase in AD through expansionary FP has limited impact on increasing national income and employment. -job credit scheme aims at retaining jobs during the downturn by reducing firms’ labour cost. Higher spending in the economy will lead to a fall in firms stock and this indicates a need for firms to increase production and thus through the multiplier process. However. Thus. •Explain the various policies used by the Singapore government to reduce the negative impact of recession. ii) Exchange rate policy: maintain a neutral stance to maintain price competitiveness of exports. AD will rise. the govt used various policies to mitigate the negative impact caused by the global slowdown.5b on job credit scheme to help firms stay afloat by giving cash grants to retain jobs etc. AD will rise as govt spending is a component of AD. -Singapore govt has implemented various policies to reduce the negative impact of the global recession on Singapore’s economy. exchange rate policy as well as supply-side policies to address the problems. the multiplier size is very small. When taxes such as corporate tax was reduced.4b). Govt spending increased and taxes were reduced. 10 . expansionary FP is used only as a buffer to reduce the severity of the recession but is not a measure to get Singapore out of the recession.

iv) Trade policy to diversify and expand export market. Through supply-side measures. Answer analyses thoroughly how global crisis affected Singapore’s economy in terms of exports and investment and the impact on national income with specific reference to Singapore economy. Signing more FTAs. the recovery from the recession has to depend on the recovery of the global demand and these policies can only help to reduce the severity of the recession in the short run and also help to improve our productive capacity in the long run to meet the eventual rise in global demand when the world economy recovers. eg. Conclusion: Given our high dependence on external demand. However. Able to give judgement on the effectiveness of the policies used Level 3: 15-21m E1 : 1-2m E2 : 3-4m 11 .Encourage labour to upgrade through training during downturn so that when the world economy recovers and dd for Singapore’s exports picks up. less reliance on US and EU markets. Level 1: 1-8m Level 2: 9-14m Answer merely states the impact of a fall in national income and gives brief mention of some policies to solve the recession problem without analysis. we are able compete in terms of price and non-price competitiveness. iii)Supply side policies to improve Singapore’s competitiveness in the long run . our economy’s competitiveness is enhanced so that when the global economy picks up and the external demand rises. Able to form some value judgement on the effectiveness of the policies used to solve the problem. the economy is able to produce high quality exports to meet the rising demand. Eg. Answer explains how global crisis affected Singapore’s exports and investment and analyses the subsequent impact on national income using AD/AS analysis. Answer analyses at least 2 policies used by the Singapore government to address the economic slowdown. The policies adopted have helped to reduce the negative impact of the recession on the economy.weaker S$ => higher prices of imports and may cause imported inflation thru higher cost of production given that some of our exports have high import content. Spur Govt spending on R&D / innovations => increase our productive capacity in the LR Govt spending on infrastructure Evaluation: Supply side policies used by the Singapore govt is aimed at improving the long run capabilities of the economy during the downturn. the global slowdown has affected us quite badly.. Answer analyses and evaluates how demand and supply-side policy measures were used to address these problems with specific reference to the Singapore economy.

full employment. investment and savings to take place. With price stability. Economic growth also helps to reduce income inequality in the economy as government has more funds available to assist the poor in the economy.price stability.with justifications. sustained economic growth and healthy balance of payment. Question 4 Governments around the world aim to achieve macroeconomic objectives of price stability. Key concepts: macroeconomic objectives . production and investments are encouraged and this leads to higher employment and economic growth. FP is necessary to buffer the negative impact on the economy but the need for supply-side polices as a long term measure to boost Singapore’s capacity and efficiency and to meet the rising demand for our exports when the global economy recovers eventually. full employment. high and sustained economic growth and healthy balance of payments. eg. •Explain the benefits of achieving economic growth Economic growth refers to both actual and potential growth. •Explain the benefits of achieving full employment Achieving full employment or low unemployment helps to ensure that the economy’s scarce resources are fully utilized so that the economy is able to achieve full employment output and higher standards of living for its citizens. [15] Analysis of Question Command word: Explain – analyse some important benefits of achieving the 4 macroeconomic objectives. With rising inflation. •Explain the benefits of achieving healthy balance of payments 12 . there is higher national output which will raise the standards of living of the citizens. a) Introduction: State the 4 macroeconomic objectives Development •Explain the benefits of achieving price stability Price stability provides a conducive environment which is important for production. (a) Explain the importance of achieving these macroeconomic objectives. [10] (b) Discuss the view that governments are not able to achieve all the objectives simultaneously. It is an important objective because with economic growth. firms can’t project their future returns easily and thus. discourage investment which is important for economic growth.

Eg. Anti-thesis: Objectives are not in conflict / objectives can be achieved simultaneously in the LR •Explain the use of supply-side policies to achieve the 4 objectives simultaneously 13 . Thesis: Objectives are not achievable simultaneously •Explain the possible conflict between price stability and full employment To achieve price stability. (2 well-explained benefits ---max 6m) Level 3: 8-10m Able to explain thoroughly the benefits of all the 4 macro objectives. govt may have to use expansionary demand side policies to stimulate AD and output. If AD rises too much. leads to a worsening of the current account of the BOP. Conclusion: All governments aimed to achieve these macro economic objectives as they bring about benefits to the economy and the citizens. Key words/concepts: macroeconomic objectives simultaneously Introduction Explain the importance of achieving these 4 objectives but recognize that these objectives may not be achievable. especially demand-pull inflation. to achieve full employment. there are possible conflicts between the various objectives and governments may not be able to achieve all the four objectives simultaneously in the short run.To achieve a healthy balance of payments means that the country enjoy surplus in its trading with the rest of the world. Thus. Thus. On the other hand. This may cause a rise in consumption of both domestic and foreign goods. import expenditure may rise and ceteris paribus. the use of contractionary FP or MP leads to a contraction in AD and national output and employment. government may need to adopt contractionary demand side policies which cause a contraction in AD and national income. •Explain the possible conflict between economic growth and healthy BOP Higher economic growth results in higher purchasing power of the citizens. it may cause inflationary pressure if the economy’s resources are fully utilized. especially in the short run. Level 1: 1-3m Mere stating of some benefits or problems of not achieving these macroeconomic objectives Level 2: 4-7m Able to explain the benefits of achieving at least 2-3 objectives. Also. b) Analysis of Question Command word: Discuss – analyse and evaluate the ability of governments to achieve the 4 macroeconomic objectives with reference to both short and long run periods. This objective is important because a healthy BOP means that the economy is performing well and accumulating foreign reserves which can be used to ensure the stability and strength of the country’s exchange rate. Therefore. price stability is achieved at the expense of full employment. Therefore. high economic growth may also lead to a rise in imports of inputs. achieving price stability may result in unemployment. to achieve price stability. The reason why these objectives could be in conflict with each other could be due to the use of only one policy to address one macro problem.

.With the use of also demand –side policies such as expansionary FP and MP to boost AD. supply-side policies which focus on R&D. the use of more than one policy. Level 1: 1-3m Answer merely states some conflicts between the various macro objectives but is lacking in analysis. both demand-side and supply-side policies. Stable prices in the economy also help to attract more FDI which helps to improve capital account and boost actual and potential growth of the economy. This is because without a rise in AD. In the long run. it is unlikely that the higher productive capacity will be put to use.. improve efficiency -Supply-side policies thus improve productive capacity of the economy causing a rightward shift in economy’s AS in the LR. No attempt to explain how in the LR these economic objectives may be attained without conflicts. Also. Answer clearly explains how the pursuit of economic objectives can lead to conflicts in the SR and how the 4 objectives can be achieved in the LR with the use of supplyside policies. the economy will be able to ensure that the objectives of full employment. govt’s subsidies on training and education=>improve the skills and quality of labour force. help to improve the costs of production and improve the quality of exports. govt’s lowering of corporate tax=> incentives for investment=> increase in capital accumulation. so there is less inflationary pressure even with a rise in AD. Some reasoned judgement that both demand and supply-side policies are needed to achieve the macroeconomic objectives without conflicts. Eg. makes labour market more flexible => reduce structural unemployment and improve labour productivity. Eg. Conclusion+ overall evaluation Conflicts between macro economic objectives may arise in the short run but in the long run. Level 2: 4-7m Level 3: 8-11m E1:1-2m E2:3-4m 14 .In the long run. This helps to ensure that the country’s exports are price competitive. with the use of more than one policies. govt’ subsidies on research and development => improve production processes. price stability and growth can be achieved in the long run. can help the economy to achieve the four macro objectives simultaneously. higher level of technology. •Explain the need to use demand-side policies together with supply-side policies to achieve the macroeconomic objectives. Answer analyses clearly the possible conflicts between objectives in the SR and explains thoroughly how supply-side policies can help to achieve all the 4 objectives without any possible conflicts in the LR. (Use AD/AS diagram to explain). reduce cost of production => improve efficiency and reduce costs of production Eg. Some judgement as to whether the 4 macroeconomic objectives can be achieved without conflicts. this helps to boost export revenue and improve current account balance. . especially with the use of supply side policies.Explain how the use of supply-side policies help to increase productive capacity and LRAS. As the economy’s ability to produce g/s increases. can help the govt to achieve all the 4 macroeconomic objectives simultaneously.

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