Question (a)

Using Table 1, compare the internal and external economic performance of Singapore and
Vietnam over the given period.

 Internal Factors
- GDP
GDP or gross domestic product is a total market value of all final goods and
services produced by a country’s economy during a specific period of time, usually a
year, there are four sectors of calculating GDP which are Consumption, Investment,
Government and Foreign (Export-Import). From this calculation, we can see that there
are other parties that affected the GDP of a country. It’s a matter of fact that all nations

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economy is being shocked because of the great recessions that happened a few years

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ago. The great recession began in December 2007 and ended in June 2009, this

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downturn was the longest since World War 2 in which impacted all of the nations, these

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global recessions make every national economy became hampered. in this case, we can
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see from the table given that how is the GDP of two southeast Asia countries
A. Singapore
In 2009 The growth domestic production of Singapore is hitting the rock bottom even
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minus in which -0,6% this demonstrates how worst are the impacts of this great
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recessions, however Singapore able to conquer this impact of this recessions and hitting
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the peak at 15,2%. In this case, inflation also increases that will be discussed further
below, at 2011 the growth domestic product also went down more than half 6,1% and
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in 2012 also went down more than half in which resulting at 2,5%.
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B. Vietnam
In 2009 during the great recession, Vietnam shows the GDP is higher than Singapore
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but keep in mind that inflation also high compared to Singapore, however in 2010 the
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GDP also increase 1% in result 6,4%, during 2011 the GDP went down 0,2% but the
inflation rate reached the peak point that will be further discussed below, and in 2012
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the GDP of Vietnam also decreased 1% to 5,2%. From these 4 years it shows how the
economy of Vietnam is at a constant rate compared to Singapore.
- Inflation rate
Inflation is an increase the general (average) price level of goods and services in the
economy, the opposite of inflation is known as deflation. The inflation happens when the

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 unemployment rate is low because more people get job more money are being out in the
society, in this case, when more money are being issued to the society the company will
definitely increase the price to cover up the cost of more worker besides to get more profit.
As a result, the company is going to increase the price, from the table shown, we can see
that when the inflation is increasing the unemployment decrease so does when the inflation
decreases the number of unemployment will rise
A. Singapore
It shows that in 2009 the inflation rate is at 0,6% and in 2010 the inflation also increase
but the unemployment rate go down this is due to when more people get to work, more
money the company has to give and more money is in society’s hand, because of this
most people get the purchasing power which resulting higher price, another example in

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2011 the number of inflation went up but it reverse to the unemployment rate. but in

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2012 the number of inflation rate also decrease so does the unemployment this may

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happen because as we learn in Keynesian Model that inflation happen also because of

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full employment it shows that 2,9% has exceed the full employment which resulting
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inflation.
B. Vietnam
It shows that the inflation in 2010 rose 1,8% from 2009, however the unemployment
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remain the same and it hits the peak in 18,7% in 2011 but the number of unemployment
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decrease 0,3% this shown that 2,3 and in 2012 the number decrease more than half but
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the unemployment rate remain the same these mean that the full unemployment is at 2
when it exceeds 2 the number of inflation will also rise up
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- Unemployment
Unemployment means the number of people that don’t work, these people is the number of
people in the civilian labor force in which 16 years old or older people, in other words
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unemployment is anyone who is 16 years of age and above who is actively seeking
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employment the unemployment rate is number of unemployment times 100 divided by total
civilian labor force. Unemployment is divided into 3 types in which Frictional, structural
and cynical although some skeptics are still arguing that why don’t the calculation of
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unemployment include discouraged workers

A. Singapore

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 The unemployment rate in Singapore decreases from 4,3% to 3,1% however the
number of inflations also increase, so does in the next year the number of
unemployment went down but the inflation goes up
B. Vietnam
- Labor productivity
A. Singapore
Labor productivity in Singapore is increasing from -3.3% to 11.6% this show that the
productivity also high, in this case we can also see on how the unemployment goes
down because people are willingly to work as a result the GDP also at the highest peak.
However, in 2011, the percentage of labor’s productivity dropped dramatically and hits
2,2% and so does the GDP that also dipped more than half percent and in 2012 the
number of labor productivity fall and reach -1,4% and followed by the GDP

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 External factors

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- Real Effective Exchange Rate

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Exchange rate means the number of one nation’s currency that equals one nation’s

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currency that equals one unit of another nation’s currency. The real effective exchange
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rate (REER) is the weighted average of a country's currency in relation to an index or
basket of other major currencies. The weights are determined by comparing the relative
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trade balance of a country's currency against each country within the index. This
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exchange rate is used to determine an individual country's currency value relative to the
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other major currencies in the index. The strong SGD means Singapore goods and
services cost foreigners more and Singapore exports fall. Also, Singapore consumer pay
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less for foreign goods and services so imports rise.

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 Question (c)

Some think that the Vietnamese government's approach is sufficient to battle inflation, while some
think otherwise. Discuss and elaborate on both perspectives.

There are some ways in order to combat with inflation:

1. Monetary policy
The policy used by the central bank to control the money in the society, the tools to control
the money in society hand are
- Open market securities
Open market securities mean the central bank is going to sell or buy the securities or
bonds. When inflation happens, the central bank is going to sell the securities to attract the

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society to buy when they buy the securities the central bank gets money because they pay

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it to the central bank, as a result, the money will come back to central bank again and

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inflation rate goes down

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- Reserve Requirement
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Reserve requirements refer to the amount of money that the banks have to keep in a period
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of time. When inflation happens, the bank will raise the reserve requirements by doing so
society can’t take the money out from the bank as what they up to. Because the bank limits
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the nominal that can be pulled out by the saver

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- Discount rate
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The bank is going to either reduce or raise the interest of saving, during inflation central
bank is going to raise the saving interest so the society is going to save more money
because the bank offers higher interest, when society save more money in the bank, the
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amount of money in society’s hand will also decrease because they save it to bank.

2. Fiscal policy
The policy used by the government by controlling the spending or taxes to alter aggregate
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demand. The tools of controlling the inflation by using Fiscal policies are
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- Government spending
When there is lots of money in society, the government reduce their spending because if
the government still increase spending, the money in society will be more and more
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because of government spending. On the other hand, by decreasing the government

spending, government don’t have to spend that lots of money so the money will not be
getting more and more hence the aggregate demand curve is also decrease so do the price
level

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 - Taxes
By increasing the taxes of the society, the amount of taxes that the society have to pay will
also increase which means government or even country will gain more money and the
money in the society’s hand will be decreased as the result due these circumstances the
product and prices will also cheaper or normal because if they sell to high the society
cannot afford to buy it

o In this case we can see on how that the Vietnam government are using monetary
policy and also fiscal policy on how the Vietnam government increase the rates to
14% in which to tighten money and credit and cut the budget deficit, which cut the
private credit by doing so Vietnam is considered as the “ world record-holder for
debt creation” according to Jonathan Anderson of UBS from this moment we can

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see that by increasing the rates make people want to save at the Bank however

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increasing the rates that high might also be a boomerang to the Vietnam

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o The government also using fiscal policy in public investment means investment by
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the government which government crop the public investment that amounted to
17% of GDP in 2009, although some skeptics are still debating about the efficiency
of this spending. By cutting this public investment may hamper the growth of the
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country because all infrastructure will be hampered like water, sanitation which
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private sector can’t deliver this leads to low productivity and worse living standard
o By seeing both of these Vietnam government actions some are still arguing whether
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this can combat the inflation rate or not. There are also some believe that the
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Vietnamese Government's approach is inadequate to fight the inflation. That is also

true as the inflation rate is not steady yet and there is still some other way that
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should be possible. There is always positive and negative of something, Vietnam

government has done their best to combat with this inflation.
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References:

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 - (2013, November 22) The great recessions retrieved from
https://www.federalreservehistory.org/essays/great_recession_of_200709
- Tucker, Irvin B. (2014) Topic 1: Gross Domestic Product page 3 and 14
- Tucker, Irvin B. (2014) Topic 2: Unemployment page 26-39
- Tucker, Irvin B (2014) Topic 3: Inflation page 3-4, 36-40
- Tucker, Irvin B (2014) Topic 4: Keynesian Model
- Tucker, Irvin B (2014) Topic 7: Fiscal Policy
- Tucker, Irvin B (2014) Topic 9: Monetary Policy
- Tucker, Irvin B (2014) Topic 10: International Trade and Finance
- Riley, Geoff (2018) Inflation – policies to control inflation retrieved from
https://www.tutor2u.net/economics/reference/inflation-policies-to-control-inflation
- Kenton, Will. (2019, February 11) Real Effective Exchange Rate retrieved from
https://www.investopedia.com/terms/r/reer.asp

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