9757 Economics

Nov 2017 Paper 2 Question 6

Marking Guide
9757 Nov 2017 Paper 2 Question 6
The Singapore economy grew by 1.8% on a year-on-year basis in the second quarter of 2015,
sharply lower than the 2.8% growth in the preceding quarter, the Ministry of Trade and Industry
(MTI) announced on Tuesday 11 August 2015.

a) Explain the internal and external factors that are likely to have contributed to this
slowdown in the economic growth rate. [10]
b) Discuss whether the policies aimed to increase the economic growth rate might cause
difficulties for Singapore’s economy. [15]

9757 Examiner Report

Part (a)
Many responses correctly gave at least one factor that may have led to the slowdown in the
economic growth rate in Singapore. In the main, answers concentrated on a wide range of external
factors that may have led to a slowdown in Singapore’s economic growth rate. The stronger
responses were more balanced and included an equally wide range of internal factors.
These responses were supported with the use of AS/AD diagrams. The weaker responses
not only tended to refer to external factors but also gave a more descriptive response which
did not make use of the appropriate economic tools of analysis.

Suggested Essay Structure:

Planning and working out a proper structure (in your response) is key to any successful essay.
This will help you achieve a top band mark.

Introduction:
Provide a topic sentence to summarise your approach to the question. The approach should
be well-directed (to the question) and demonstrate to the examiner that you understand the
specific requirements of the question. To do so you may also want to unpack key terms,
identify concepts and tools of analysis relevant to the question and provide definitions where
applicable.

What are the key terms in the question? How do I unpack the question?

What are the concepts and tools of analysis relevant to the question?

Write a short introduction to summarise your approach to the question:

Introduction:
Suggested Introduction:
This essay will apply AD-AS analysis to a range of domestic (internal) and external factors that weighed
on Singapore’s economic growth in 2015. These factors include cyclical and structural ones; broad-
based and sector specific ones; as well as policy-related and non policy-related ones.

Each of the factors should be explained in terms of the context in which it developed/arose and its
eventual impact on the components of AD and/or AS, taking into consideration the relative importance
of the factor depending on the extent of its effect on key sectors of Singapore’s circular flow of income.
AD-AS analysis will then be used to explain how the combined effect of the factors brought about a drag
on Singapore’s economic growth in 2015.
9757 Economics
Nov 2017 Paper 2 Question 6
Marking Guide
Body:
*Before you proceed, identify 3-4 key points that you will be writing about in your essay.

For each point….use the PEEL format to develop a proper and thorough economic analysis.
The analysis should be developed in the context of the question set, with a “step by step chain
of argument”. Relevant diagrams and appropriate examples should also be included.
*The focus is on how to develop an analytic explanation that demonstrates that you are able
to apply your understanding of economic concepts to the context of the question. Ask yourself:
how different is your answer compared to one written by a journalist?

Point 1:
- Explain that slowing growth has to do with a lower rate of increase in real national income. Reference to
growth trends, where available.
- Explain the economic characteristics of Singapore in terms of the dependence on external trade and the
heightened exposure (vulnerabilities due to the openness of the economy) to demand and supply shocks
in the external environment.

Source: World Bank

Source: MTI Economic Survey of Singapore 2015

9757 Economics
Nov 2017 Paper 2 Question 6
Marking Guide
Point 2:
[Overview of the factors that have contributed to a slowdown in Singapore’s
economic growth rate in 2015]
Factors (context) Type Impact
on
AD/AS
Sluggish global economic conditions or external environment to do with the External,
pace of economic recovery in countries affected by the financial crisis. The cyclical,
growth momentum in key export markets were only just starting to pick up => broad-
dampening effect on Singapore’s export growth. based

Source: MTI Economic Survey of Singapore 2015

Source: MTI Overview of Wholesale and Retail Trade Sector

*Apart from the sluggish external environment, what had contributed to the fall
in external demand growth?
9757 Economics
Nov 2017 Paper 2 Question 6
Marking Guide

Economic rebalancing in the economies of Singapore’s major trading partners External,

led to firms in the United States and China increasingly sourcing domestically structural
instead of importing from Asia. The transition of China towards domestic consumption
away from state-led investment as a source of growth had caused the overall level of
imports to fall. There are also longer-term shifts in supply chains and productions
patterns, a pull-back from globalisation and an erosion of the multilateral trading
system, including institutions like the World Trade Organisation. All these resulted in
a significant impact on Singapore’s market size (fall in trade volume).

Disinflationary or deflation (the euro zone) trends across the global economy, External,
largely due to a lack of growth momentum that translated to a slower pace of job cyclical
creation and curtailed the upward trend in prices.

A fall in global oil prices that weakened prospects for new rig orders in the marine External,
and offshore industry, and heightened the risks of cancellations of existing orders. cyclical
Note that a fall in the prices of oil, commodities or energy inputs also had the effect
of lowering unit costs of production.

Real estate crisis in China and the anticipated normalization of interest rates in
the US.
Sluggish growth in labour force and productivity (despite Singapore having one of the Domestic,
highest labour force participation rates in the world). The tightening of foreign labour structural
flows and tapering resident workforce growth contributed to tightness in labour
markets ==> upward pressure on labour costs.

Economic restructuring in 2010 that involved Domestic,

- foreign labour tightening structural,
- the imposition of higher foreign worker levies policy-
- the adoption of or shift towards a growth model based upon productivity related
enhancements, technology, innovation, digitalisation as key growth drivers
9757 Economics
Nov 2017 Paper 2 Question 6
Marking Guide

*What were the impacts of economic restructuring on the Singapore economy?

Short-term increase in production costs and added uncertainties to long-term
potential growth

Possibility of other downside risks or factors

Point 3:
[How the combined effect of the factors – both internal and external – brought about
a drag on economic growth]
Impact on AD
Cyclical headwinds (largely external) to do with the ‘absence of a meaningful rebound in consumer confidence
globally’ accounted for the lack of a significant pick-up in consumer and investment spending as well as the
slump in oil prices, among other possible factors including the gradual economic rebalancing of Singapore’s
major trading partners, China and the US. Firms and households in the economies of Singapore’s major trading
partners held back spending in the face of economic uncertainties and sluggishness over a protracted period of
time and this inevitably translated to slower export growth for Singapore. Depressed prices of oil, largely a result
of a slowdown in global growth caused a contraction of revenues for firms in oil and gas-related sectors in
Singapore. This made it difficult to sustain production and firms will be forced to cut back output expansion and
the hiring of workers, despite the lift provided by the growth in wholesale & retail trade as well as financial &
insurance services. The net effect was a smaller magnitude of increase in aggregate spending for
Singapore.

Impact on AS
Structural factors (domestic) included government policies (e.g. foreign worker levy hikes, incentives to promote
innovation and enterprise) to undertake economic restructuring to shift to a growth model underpinned by
innovation and technological utilisation, as well as issues to do with weak productivity growth, loss of
competitiveness, rising inequality among businesses in adopting new technologies or exploiting technological
developments, shrinking labour force etc. These either added to short-term cost, resulted in the closure of
less competitive firms or contributed to rising structural unemployment that caused AS to decrease or
limited the expansion of productive capacity, including possible impacts on AD, the effect of which was
to dampen growth.

AD-AS diagram to illustrate.

Point 1:
Apply the PEEL format to develop a thorough analysis.
P:
E:
E:
L:
9757 Economics
Nov 2017 Paper 2 Question 6
Marking Guide
Point:

Evidence/Example:

Elaboration/Explanation:

Link:

Conclusion:
You may summarise the key points in your answers. Alternatively think of a statement that
connects meaningfully your answers in a) to how you will begin your answers to b).
Suggested Conclusion:
Provide a conclusion that meaningfully connects with the answers to part (b).

In summary, a combination of domestic and external factors, both cyclical and structural, have contributed in
varying degree to the slowdown in Singapore’s economic growth rate. In response the government has
implemented various policy measures that may be able to address the factors, depending on how they
developed and the extent of the impact on the economy.

9757 Nov 2017 Paper 2 Question 6

Levels of Response Mark Scheme (LORMS)

Part (a)
Levels Knowledge, Application, Understanding and Analysis [KAUnA]

L3 For an answer that uses appropriate analysis to explain a range of factors that
8 – 10 have contributed to the slowdown in Singapore’s economic growth.
(9) [Students are expected to demonstrate a thorough knowledge of the facts and
theory relevant to the question and an ability to describe and explain this in a
precise, logical, reasoned manner to arrive at a reasoned and analytical
structure to the whole answer. Relevant and appropriate examples or
illustrations are also provided as further evidence of the ability to apply
theoretical/conceptual knowledge/understanding to current situations in the
context of the question. Given the time constraint, the answer’s demonstration
of KAUnA could not be improved significantly.]

L2 For an answer that gives a descriptive explanation of a range of factors that

5–7 have contributed to the slowdown in Singapore’s economic growth.
(6) [Students demonstrate an accurate although undeveloped explanation of the
facts and together with an explanation of the theories relevant to the question.
There is also evidence of an ability to identify facts, some ability at graphs
(where relevant), and a fair ability to apply conceptual/theoretical
knowledge/understanding to current situations. There might also not be a
reasoned and analytical structure to the whole answer.]

L1 For an answer that shows some basic but largely unexplained knowledge of
1-4 the range of factors that have contributed to the slowdown in Singapore’s
(3) economic growth.
[There is some demonstration of knowledge, but little indication that the
meaning or requirements of the question have been properly grasped. Basic
errors of theory and/or an inadequate development of analysis may be evident,
where the whole answer is mostly irrelevant and/or only contains a few valid
points made incidentally in an irrelevant context.]
9757 Economics
Nov 2017 Paper 2 Question 6
Marking Guide
Outline of answers to part (a)

[How the combined effect of the factors – both internal and external – brought about a drag on economic
growth]
Impact on AD
Cyclical headwinds (largely external) to do with the ‘absence of a meaningful rebound in consumer confidence
globally’ accounted for the lack of a significant pick-up in consumer and investment spending as well as the slump
in oil prices, among other possible factors including the gradual economic rebalancing of Singapore’s major trading
partners, China and the US. Firms and households in the economies of Singapore’s major trading partners held
back spending in the face of economic uncertainties and sluggishness over a protracted period of time and this
inevitably translated to slower export growth for Singapore. Depressed prices of oil, largely a result of a slowdown
in global growth caused a contraction of revenues for firms in oil and gas-related sectors in Singapore. This made
it difficult to sustain production and firms will be forced to cut back output expansion and the hiring of workers,
despite the lift provided by the growth in wholesale & retail trade as well as financial & insurance services. The net
effect was a smaller magnitude of increase in aggregate spending for Singapore.

Impact on AS
Structural factors (domestic) included government policies (e.g. foreign worker levy hikes, incentives to promote
innovation and enterprise) to undertake economic restructuring to shift to a growth model underpinned by
innovation and technological utilisation, as well as issues to do with weak productivity growth, loss of
competitiveness, rising inequality among businesses in adopting new technologies or exploiting technological
developments, shrinking labour force etc. These either added to short-term cost, resulted in the closure of
less competitive firms or contributed to rising structural unemployment that caused AS to decrease or
limited the expansion of productive capacity, including possible impacts on AD, the effect of which was to
dampen growth.

b) Discuss whether the policies aimed to increase the economic growth rate might cause difficulties for
Singapore’s economy. [15]

9757 Examiner Report

Part (b)
The stronger responses showed a good understanding of macroeconomic policies that have been adopted by the
Singapore government and more importantly of the difficulties that the Singapore economy might face following
their implementation. These responses made sound judgements about the relative difficulties faced by each type
of policy and came to a good summative conclusion. The weaker answers were less well focused on the question.
The weaker responses largely ignored the ‘difficulties’ aspect of the question or confined their comments
on the difficulties to some pre-prepared evaluative comments on each individual policy.

Key Economic Challenges:

Trends and Developments in the External Environment:

Economic rebalancing in the economies of Singapore’s major trading partners led to firms in the United States and
China increasingly sourcing domestically instead of importing from Asia. The transition of China towards domestic
consumption away from state-led investment as a source of growth had caused the overall level of imports to fall.
There are also longer-term shifts in supply chains and productions patterns, a pull-back from globalisation and an
erosion of the multilateral trading system, including institutions like the World Trade Organisation. All these
resulted in a significant impact on Singapore’s market size (fall in trade volume).

Issues on the Domestic Front:

- commitment to economic sustainability
- skills base of future workforce
- entrepreneurship and innovation

Relevance of the following in view of the external trends of rebalancing, de-coupling and restructuring of global
value chains (due to rising labour costs in China and the threat of rising tariffs and export controls arising from
increased trade tensions between China and the US), as well as domestic issues.
- logistic ecosystem centred around port operations, containerisation, warehousing
- Networked Trade Platform (NTP) to facilitate the growth of efficient and transparent global supply chains
- Research, Innovation and Enterprise 2020 Plan (RIE) to exploit the growing demand for next-generation,
technology-enabled value chains
- Good governance and institutional efficiency
9757 Economics
Nov 2017 Paper 2 Question 6
Marking Guide
Singapore has to adopt targeted, long-term view to tackle economic challenges: Chan Chun Sing

Singapore must build on its fundamentals like its stable and pro-business environment to create the conditions
for its longer-term success. He also cited the country's progressive regulatory environment, its connections to
markets in Asia and beyond, its skilled workforce and tripartism. These fundamentals are why Singapore has
managed to maintain its competitiveness and attract high-quality investments like that from industrial gases
and engineering group Linde, which will invest US$1.4 billion (S$1.9 billion) to expand its existing gasification
complex on Jurong Island. Singapore has to diversify and deepen its access to markets, work with like-
minded countries to explore new areas of cooperation, and press on with efforts to renew the domestic
economy.

- Managed appreciation as the basis for achieving medium term price stability
- SSP (market-oriented) – labour market efficiency – economic certainty and stability for potential investors
- FP or SSP (interventionist)

- Identify and outline a range of policy options:

o Expansionary fiscal policy
o Exchange rate centered monetary policy - managed appreciation or depreciation
o Supply-side policies to improve the quantity, quality and mobility of FOPs to

- Explain the intended consequences of the policy measures in sustaining economic growth amid short-term
headwinds and long terms challenges posed by global trends and developments, as well as issues on the
domestic front (refer to key economic challenges above).
- Explain difficulties in terms of possible limitations and/or possible unintended consequences arising from the
policy decisions.
o low multiplier value
o domestic causes of inflation (limitation of managed appreciation)
o emergence of low-cost competitors or increased competition from emerging market economies (less
attractive as a destination for foreign investments)
o trends and developments that reduce global trade volume (in relation to managed depreciation)
o ability of firms to adopt new technologies or innovation / ability of workers to develop new skill sets
so as to exploit the growing demand for next-generation, technology-enabled value chains
o short-term disruptions (e.g. structural employment) as the economy embarks on a model of growth
driven by productivity gains, innovation and technological adoption
- Consider how likely such difficulties may arise depending on prevailing and evolving economic conditions –
both domestic and external – as well as the ability of the Singapore government in addressing the limitations
or the unintended consequences associated with the policy options.

9732 N2014/II/Q6
Since the economic crisis of 2008, rates of economic growth across the world have differed
considerably.

a) Explain the key determinants of actual and potential economic growth. [10]
b) Assess the alternative economic policies that the Singapore government could adopt to
maintain a sustained rate of economic growth into the future. [15]