2023 Term Assessment Revision Package Set 2

Suggested Answers for Section A

Question 1 (Case Study)

(a) With reference to the tables, explain one indicator used by economists to assess the
economic performance of an economy. [2]

Question analysis:
Command Explain
Concept Indicator used to assess economic performance
Context Not applicable

Suggested response:
1. Identify one indicator with reference to the tables
• Real GDP growth rate / Unemployment rate / Inflation rate / Real GDP

2. Brief explanation of how the chosen indicator allows for an economy’s

economic performance to be assessed
• A positive and high real GDP growth rate suggests that the economy is producing
more output and thus enjoying good economic growth. / The unemployment rate
reflects the utilisation of labour resources in the country and allow economists to
draw inferences on the country’s output level or economic growth rate. / The
inflation rate reflects the change in a country’s general price level and reflects the
country’s economic growth and unemployment conditions / Real GDP reflects the
country’s national income with the effect of price changes removed hence allowing
changes in real GDP to reflect economic growth.

Marking scheme
✓ 1m: Correction identification
✓ 1m: Valid explanation of how the indicator is able to reflect economic performance

Note to markers
➢ The use of HDI is accepted
➢ As the question is asking for one indicator, marks will not be awarded for answers
that used real GDP per capita (by dividing real GDP over total population)
➢ Answers need not provide definition of the indicator to be awarded the second mark

(b) Comment on whether the data supports the view that Singapore has a higher standard
of living compared to China in 2018. [6]

Question Analysis:
Command Comment on
Concept Indicators used to compare standard of living across countries
Context Singapore vs. China

Suggested response:
1. Briefly unpack what it means by Standard of Living (SOL)
• SOL refers to the quality of life enjoyed by individuals in a country, measured in
material and non-material (such as in terms of the access to healthcare as well as
education) terms.

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2. Use data to support the view that the SOL in Singapore is higher in 2018
• Table 1 and 2 suggest that Singapore’s real GDP per capita (obtained by dividing
real GDP over total population) is higher in 2018. Given that GDP is an indicator of
a country’s national income, the comparison suggests that on average, individuals
in Singapore are enjoying a higher material SOL (i.e. a greater quantity and quality
of goods and services) compared to individuals in China.
• Singapore’s non-material SOL is also higher as shown by the lower carbon dioxide
emissions (Table 1) and higher HDI value (Table 3) in 2018. These data suggest
that the quality of air, access to education and healthcare services are better in
Singapore.

3. Provide an alternative perspective against the above-mentioned view

• However, there are insufficiencies and limitations in the data provided so it is not
possible to conclusively support the view that Singapore has a higher SOL:
EITHER
o The use of real GDP per capita does not take into account differences in
price levels in Singapore and China. If the cost of living is lower in China,
individuals will have a higher purchasing power to enjoy a higher material
despite the lower real GDP per capita in comparison to individuals in
Singapore.
OR
o The use of market exchange rates to convert the two countries’ national
income figures into a common currency (US$) can lead to statistical
inaccuracies and distortions.
OR
o Any valid response.

Marking scheme
✓ 4m: Good use of data in supporting the view that Singapore has a higher material
and non-material SOL in 2018
✓ 2m: Providing an alternative perspective to suggest otherwise

Note to markers
➢ Answers that bring in the use of data that do not reflect SOL directly but are able
to correctly explain how the chosen indicators reflect SOL (e.g. unemployment rate)
can still be awarded 4m

(c) Using a diagram, explain the impact of ‘soaring’ global oil prices (Extract 1) on an oil
importing economy’s real national income and general price level. [5]

Question Analysis:
Command Explain (the impact): Cause-effect analysis
Concept Using AD.AS analysis to determine the change in real national
income and general price level
Context Oil importing economy

Suggested response:
1. Explain reason for and direction of SRAS change
• Oil is a key factor of production for most if not firms since it is required for generation
of energy.
• The increase in global oil prices may cause firms in an oil importing country to
experience a higher cost of production [Extract 1].

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• This leads to a decrease in Short Run Aggregate Supply (SRAS).

2. Explain the change in RNY and GPL with reference to the diagram
• The decrease in SRAS is represented by a leftward shift of the SRAS curve from
SRAS1 to SRAS2 as shown in the diagram below.
• Firms may attempt to pass on the higher cost to consumers in the form of an
increase in GPL from P1 to P2.
• In response to the higher GPL, consumers may choose to cut down on their
consumption expenditure on goods and services (illustrated as an upward
movement along AD curve), causing a decrease in real national income from Y1 to
Y2 as shown below.

3. Correctly drawn diagram

General Price
Level
SRAS2 SRAS1

P2
P1

AD

Real National Output

Y2 Y1 / Income

Marking scheme
✓ 1m: Higher cost of production hence a decrease in SRAS
✓ 1m: Increase in GPL
✓ 1m: Decrease in RNY
✓ 2m: Correctly drawn diagram that is being referred to in explanation [deduct 1 mark
for any imperfection e.g. wrong labels]

Note to markers
➢ Max 3m: Answers that bring in AD analysis with a correctly drawn diagram →
“Higher imported oil prices may lead to higher import expenditure hence reducing
AD. This leads to a decrease in both RNY and GPL.”

(d) (i) Explain what is meant by sustainable growth. [2]

Question Analysis:
Command Explain what → Define
Concepts Sustainable growth
Context Not applicable

Suggested response:
• Sustainable growth refers to a country experiencing:
o Positive economic growth that can be maintained,

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o without creating other significant economic problems (such as depleted

resources and environmental problems), particularly for future
generations.

Marking scheme
✓ 1m: For answers with a valid but incomplete understanding of sustainable growth
e.g. sustainable growth refers to a country achieving both actual and potential
growth / sustainable growth refers to a country achieving continuous positive
economic growth

(ii) Discuss whether the Climate Action Plan (Extract 2) is likely to bring about more
gains than losses for the Singapore economy. [10]

Question Analysis:
Command Discuss whether → To provide 2-sided analysis with an overall well-
reasoned judgement
Concepts Macroeconomic aims / goals, AD/AS
Context Climate Action Plan, Singapore economy

Suggested response:

Introduction – Briefly explain what the Climate Action Plan is about

• To combat climate change, Singapore launched the Climate Action Plan in 2016
(Extract 2).
• The plan includes various measures such as the implementation of a carbon tax
and higher investment in research and development (R&D) on alternative energy
sources.

(Requirement 1) The Climate Action Plan is likely to benefit the Singapore

economy)

The Climate Action Plan is likely to benefit the Singapore economy through the
unlocking of growth opportunities in clean energy industries, allowing for
sustainable growth and higher employment to be achieved.
• In the long run, the investment in R&D on alternative energy sources can help
Singapore to manage cost-push inflation caused by soaring oil prices (Extract 1).
This reduces Singapore’s dependence on oil imports, allowing for both cost of
production and cost of living to be kept stable even if when global oil prices soar.
• The increase in investment expenditure by the government will boost Aggregate
Demand, allowing the economy to achieve actual growth. In the process, firms will
have to hire more labour for production, raising the demand for labour hence
wages, thus prompting households to consume more, triggering further rounds of
increased AD via higher consumption expenditure. This means that there will be a
more than proportionate increase in real national income due to the multiplier effect.
• In the long run, potential growth can also be reaped from the investment
expenditure coming from various economic agents such as the government,
domestic firms and foreign firms.
• More importantly, successful implementation of the Climate Action Plan will help
Singapore to strengthen its push in achieving sustainable growth and establish
itself as a leading clean energy hub in Asia. In the long run, Singapore’s export
competitiveness may also be boosted through the creation and development of
green products and services.

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• As more growth opportunities in clean energy industries are unlocked, the demand
for workers who have the relevant skills to work in these industries would increase.
This suggests greater employment opportunities in these sectors.

(Requirement 2) Some of the measures may negatively impact the economy

However, some of the measures may negatively impact households, businesses

as well as the economy’s export competitiveness, jeopardising growth in the
short term.
• As mentioned in Extract 2, the carbon tax will be applied to all sectors. This will
translate to an increase in firms’ cost of production, causing a decrease in the Short
Run Aggregate Supply. Although the investment in R&D on alternative energy
sources can help to mitigate higher global oil prices, cost of production is likely to
still rise in the short term since time is needed for successful R&D results to be
reaped.
• This increase in general price level will in turn raise the cost of living for households
and reduces firms’ export competitiveness. As a trade-dependent economy,
Singapore’s export revenue may be negatively affected, causing real national
income / growth to fall in the short term.

Evaluation: Extent of benefits vs costs to Singapore

Overall, the Climate Action Plan should be viewed as bringing more gains than
losses to the Singapore economy.
• The Singapore government stands ready to support households and businesses in
adjusting to measures such as the implementation of a carbon tax. As mentioned
in Extract 2, the government has planned to use the carbon tax revenue collected
to ease households’ and businesses’ concerns with cost of living and production
cost.
• Therefore, although there may be more losses than gains in the short run, strong
government support will help to ease the transition and bring about an overall
positive net benefit to the Singapore economy in the long run.

Marking scheme

Levels Descriptors for Analysis Marks

L2 • For a well-developed and balanced analysis explaining both 5-7
opportunities and challenges
• Good use of economic analysis in explanation
• Well-supported with good use of relevant case evidence

Note to markers:
➢ Max L2 - 5m can be awarded for a well-developed answer
but one-sided answer (i.e. only opportunities or challenges
are explained)
➢ 7m to be reserved for answers that are able to bring in
sustainable growth

L1 • For an under-developed answer focusing on either 1-4

opportunities or challenges
• Limited and / or inaccurate use of economic analysis in
explanation
• No / limited use of case evidence

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Levels Descriptors for Evaluation Marks

E2 • For an answer that provides an overall well-reasoned 2-3
judgement / stand that addresses the question

E1 • For an answer that tries to address the question by stating 1

simplistic evaluative statements that are not supported /
expanded further
• Such an answer may make use of time period as an
evaluation criteria (e.g. more gains than losses in the long
run) without any elaboration provided.

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Set 1 Section B: Essay

2. Singapore's labour market faces challenging times ahead. Its unemployment rate stands
at 2.1% and faces the prospect of higher rates if it does not minimise the job-skills
mismatch. Source: The Straits Times, 28 Oct 2016

(a) Explain how economists measure the economic performance of a country. [10]

(b) Discuss the view that structural unemployment is likely the most significant [15]
macroeconomic problem faced by Singapore.

(a) Explain how economists measure the economic performance of a country. [10]

Answer requires students to explain various economic indicators that measure the economic
performance of a country. Students are expected to explain how these macroeconomic
indicators are used to reflect the economic performance of a country.
Introduction:
Economic indicators that reflect a country’s economic performance is of great interest to
governments mainly to gauge the rate of its progress and its ability to achieve the four main
macroeconomic objectives. Economists are particularly interested in such indicators to gauge
the economic performance of a country. One commonly used statistic is national income,
which serves as a statistical description or economic indicator of a country’s economic
performance.
Body:
(Requirement 1: How economic performance is measured – National Income or REAL
GDP)
Economic performance of a country is normally measured in terms of its performance in the
four macroeconomic areas of economic growth, employment, price stability and balance of
payments. These are important as they will ultimately determine the country’s ability to provide
welfare and high living standards for its people.

• The first most important indicator is economic growth rate and this is indicated by the
volume of production, easily measured by real GDP.
• GDP refers to the monetary value of output produced within the geographical boundary
of the country over a period of one year and ‘real’ means the value has been adjusted
for inflation.
• The rate of growth in the real GDP is a good indication of the level of economic
activity, how fast a country is able to increase its production output and on average
how much more income is its household enjoying.
• Rate of growth in real GDP is obtained by measuring the percentage change in its
GDP in comparison to a base year or compared to previous year. Slow economic
growth means lower growth in real GDP and results in lower growth in real GDP per
person, assuming constant size of population. This leads to slower increase in
consumption.
• A negative rate of economic growth would mean that the economic is shrinking, and
that could mean a lower SOL for its people.

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Apart from GDP growth rate, other economic indicators like unemployment and inflation rates
provide indicators of the country’s internal health while its balance of payment position
indicates its external performance.
(Requirement 2: Either Rate of inflation, Rate of Unemployment and/or External Balance
as supplements to National Income for a comprehensive analysis of an economy’s
macroeconomic performance)
• Economists, by measuring unemployment rate would be able to gauge the extent to
which resources are utilised in the country. Unemployment rate is calculated by the
formula, No of unemployed/ size of labour force  100.
• It represents the percentage of labour force that are actively looking for a job but unable
to find one.
• High unemployment means that resources are being underutilised and the economy
is producing below full capacity, thus there is a loss of output that could have been
potentially enjoyed.
• Countries that have high unemployment rates also normally experience slow or
negative economic growth, indicating poor economic performance.

• Inflation rate which is measured by the percentage change in consumer price index
(CPI) is also used to compare the level of internal price stability of a country.
• The CPI measures the general price level of a basket of consumer goods and services.
Thus when there is an increase in CPI, this will cause inflation to occur.
• High inflation rates result in low purchasing power for its people. Countries with high
inflation rates will not be able to sustain economic growth and will not be able to attract
foreign investors to come into its country.
• On the other hand, deflation would likely show that the economy is slowing down.

• As all economies engage in trade (albeit different degrees), its balance of payment
position is an important record of its external health, its wealth of foreign reserves
and its ability to sustain imports without getting into a debt.
• A net outflow in the current account is likely to mean that import expenditure is
greater than export revenue, which leads to falling AD, bringing about lower
economic growth and rising unemployment.
• Countries that suffer from large and prolonged BOP deficits normally have weakened
currencies and for open economies that rely on trade.
• The weaker currency will affect business confidence and this may feed back into
the domestic economy in the form of lower investment, slow down in AD and
potential growth of the economy.
Conclusion:
Economists normally make use of a combination of economic indicators to measure the
economic performance of a country. Caution must be taken however as data collected may
vary in terms of its reliability and accuracy.

Level Knowledge, Application, Understanding and Analysis Marks

L3 • Well-explained and developed answer that shows clearly how 8-10
economic performance can be measured using at least 2 key
economic performance indicators such as real GDP, unemployment
rate, inflation rate and the state of BOP and one of which must be GDP.

• Answer illustrates how these indicators can be used to reflect

economic performance in different countries. For eg. How the rate of

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change in GDP of a country reflects the growth performance of a

country.

L2 • Answer lacks either breadth or depth in showing how these indicators 5-7
can be used to measure economic performance of different countries.
For eg. May illustrate economic growth of a country using real GDP per
capita, without explaining why using real values and per capita is more
accurate and appropriate.

L1 • Answer does not clearly show how the economic indicators is used to 1-4
measure different aspects of economic performance.
• Answer that is a mere listing of points or has many inaccuracies and
inconsistencies.

(b) Discuss the view that structural unemployment is likely the most significant [15]
macroeconomic problem faced by Singapore.

Suggested Approach:
Answer requires students to understand the various macroeconomic problems that
Singapore currently faces and discuss if structural unemployment is the most significant
problem. Students should address what it means by “most significant”, and one way to doso
is by discussing the consequences of structural unemployment and weigh it against
consequences of other macroeconomic problems. Answer should analyse the severity of
these consequences and make a judgement of whether structural unemployment has the
most damaging impact on the economy or the hardest problem to solve.

Introduction

• Explain what structural unemployment is: Structural unemployment refers to the

mismatch between the skills possessed by the workers and those required by new
industries. It is part of the natural rate of unemployment and exists even when the
economy is at full employment as mentioned at the start of the essay.
• Describe the nature of Singapore’s economy: Singapore’s economy is an open
economy, one which is open to external flows and dependant on trade. Singapore’s
economy is export driven whose trade accounts for almost 4 times of GDP. Thus an
open economy like Singapore is particularly susceptible to external shocks.
• State the macroeconomic problems faced by Singapore:
All economies have various macro objectives to attain like healthy economic growth, full
employment, price stability and healthy balance of payments. In failing to achieve these
goals, this results in the economy facing several macroeconomic problems.
• Explain what it means by “most significant problem”: In order to assess whether
structural unemployment is the most significant problem, this depends on the
prevailing economic situation and which problem is the most dominant. This also
depends on which macroeconomic problem has the most damaging impact on the
economy and the difficulty in solving it.

Body (Requirement 1: Structural unemployment might be the most significant

macroeconomic problem faced by Singapore)

Structural unemployment might be the most dominant type of unemployment in

Singapore.
• Structural unemployment is one of the most dominant type of unemployment in
Singapore as the country constantly restructures its economy. This is due to the

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rapidly changing global economy and Singapore is greatly affected by external

changes as it is an open economy and greatly dependent on trade.
• E.g As the country moves from the secondary to the tertiary sector, workers finds
itself with a mismatch between their skills and the requirements of new jobs.
Singapore moved from manufacturing (especially in the areas of chemical,
electronics and engineering) in the 1990s to R&D (especially in the areas of
environmental & water technology, biomedical sciences and interactive & digital
media) in the millennium. This hence resulted in the workers not having the suitable
set of skills which is required for these new jobs.
• Also, workers might not obtain a job when the economy recovers if their skills are
irrelevant to the new industries or they could even be displaced when the
economy is growing due to changes in comparative advantages and globalisation.
Due to prolonged periods of joblessness, workers could also become de-skilled as
their skills become increasingly dated in a rapidly changing job market which further
reduces their chances of gaining employment in the future. Thus this means that
structural unemployment could continue to persist even though the economy
is recovering.
• In addition, prolonged periods of structural unemployment would result in the lack of
confidence amongst investors. Open economies like Singapore would be impacted
more significantly due to free flow of capital. Hence, I decrease -> decrease AD ->
decrease GPL and NY.

How structural unemployment might be most significant as it may be the most

damaging in comparison with the effects of other macroeconomic problems that
Singapore is currently facing.

• Structural unemployment is more significant than other macroeconomic problems as it

could also lead to slower economic growth. The undesirable outcome of the fall in
quantity of productive resources employed is slower economic growth and a
subsequent fall in material standard of living. The subsequent lower personal
income tax collected can have an impact on the size of the fiscal expenditure by the
government to benefit the people in provision of merit goods like health care, education
and a quality network of transport system. The government might have to resort to
raising taxes in other areas to fund expenditure on such merit goods. In the long run,
the fiscal deficit can have a negative effect on the reserves of the country.
• The effects of structural unemployment would be most significant for open
economies like Singapore given the mobility of labour (ev). Workers who lack the
skills needed in the industries are able to move to other economies where their skills
are needed. Thus prolonged structural unemployment could result in the problem of
‘brain drain’, which will decrease in productive capacity of the economy, leading to
the decrease in potential growth. Thus structural unemployment might have a
more permanent effect on the economy.
• However, structural unemployment is quite a significant problem as it may worsen
income inequality and hinder inclusive growth. Due to the dynamic changes in
comparative advantage, wages in the growing high-tech sector are rising while
workers who are displaced are suffering from a loss in income. This widens the
income gap despite rising GDP growth with high value-aid industries.
• It takes a shorter time to address the other macroeconomic problems (such as
slow economic growth, recession, inflation) compared to structural unemployment as
it takes time to train and/or re-educate workers and the success depends very much
on the capacity of workers to learn and apply their new found skills and knowledge
and prove that they could value-add to firms which are using technology in their
production processes.

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Evaluation: The extent of effects of structural unemployment might be more severe

compared to other types of unemployment.
• Structural unemployment is more persistent and could go on for a longer period of
time than demand-deficient unemployment. When the economy eventually recovers,
there will be a higher demand for goods and services thus leading to a higher demand
for labour, thus reducing demand-deficient unemployment.
• Increase in demand deficient unemployment is likely to be less severe and can be
reduced by demand management tools while structural unemployment can be due to
negative outcome of globalisation and take a much longer time to overcome.
• This adds additional burden to the government as more welfare benefits need to be
given out. Coupled with increased spending by the government in terms of benefit
payments and lesser tax revenue, government would be experiencing a budget deficit.
Also, government would be experiencing a greater budget deficit as the case of
structural unemployment will be longer lasting than other types of unemployment.

Extent to which structural unemployment may not be significant:

• Government already put in place many policies that will help mitigate structural
unemployment. For e.g Skills Future. This will help to reduce structural
unemployment as it equips people who are unemployed with the necessary skills to
reduce the job-skills mismatch and thus they will be equipped with the skills
necessary for the jobs available in the economy. Thus structural unemployment may
not be the most significant macroeconomic problem due to the policies in place that
mitigate it.

(Requirement 2: Structural unemployment might not be the most significant

macroeconomic problem faced by Singapore → other macro problems to be
highlighted)

The effects of structural unemployment might not be as severe in comparison with

other macroeconomic problems that Singapore is facing.

• Macroeconomic problems such as slow economic growth, low inflation/deflation,

might be more significant as each of them are interlinked with each other and are
more widespread in their effects for open economies like Singapore.

Compared to Slow/Negative Economic growth:

• Developed, small, open economies such as Singapore is particularly susceptible to

external shocks as it is very dependent on trade. Hence when other countries are
facing recession, this will affect Singapore greatly as its economy is export driven.
• For example, during the 2008-2009 sub-prime crisis in US, due to a fall in national
income in US, this results in them buying less exports from Singapore. Also, due to
poor business sentiments and consumer confidence, this leads to a fall in
consumption expenditure and investment expenditure. Thus this leads to a fall in AD
in Singapore, which leads to a fall in NY, leading to negative economic growth.
• Negative economic growth could cause also cause unemployment to increase as
well. Decrease in real national income -> reduced output of goods and services ->
decrease demand for labour -> increase in unemployment rate -> decrease
disposable income and purchasing power -> decrease consumption -> decrease AD
and problems are worsened.
• Also, negative economic growth may be due to the failing of a few industries initially.
However, the recession will cause business pessimism to grow and thus it is
expected to affect other industries in the economy, hence its effect is very
widespread. In comparison, structural unemployment usually only affects specific

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industries thus only specific groups of workers will be affected which is less
detrimental than negative economic growth.
• In the same way, there are already many policies in place to reduce structural
unemployment such as Skills Future, to equip people with the necessary skills to find
jobs. Hence it seems that this problem is more manageable and can be controlled
locally. However, whether the economy can increase its economic growth depends
on whether the global economy can recover, thus making it more difficult to solve
than structural unemployment.

Compared to Falling Inflation/Low Inflation/Deflation

• Open economies such as Singapore face falling inflation rates due to a decrease in
demand for goods and services by economies who are currently in recession and an
increase in supply of goods due to improvement in technology and falling oil prices.
• With decreasing general price levels, producers will not be incentivised to produce
hence output decreases. This leads to a decrease in demand for labour as it is in
derived demand hence increasing unemployment. As unemployment increases,
disposable income decreases leading to lower purchasing power hence consumption
decreases. This leads to decrease in aggregate demand and hence real national
income which further worsens the problem of unemployment and economic growth.
Thus this might be a more significant macroeconomic problem compared to
structural unemployment as it results in the other macroeconomic goals not being
achieved as well.

**Note: Students are not required to mention every point as long as 2-3 points are well-
elaborated.

Conclusion

Whether or not structural unemployment is the most significant macroeconomic problem

depends on the state of the economy (i.e severity of problems), the relative severity of
consequences of these problems and the preparedness of the government in managing
structural unemployment (i.e government policies) (Ev).

Hence structural unemployment may not be the most significant macroeconomic problem
as the effects are isolated to a specific group of people who do not have the relevant skills
for the jobs (EV). Also, the government has been actively implementing policies to mitigate
structural unemployment by upgrading of skills for the jobs available.

However, macroeconomic problems like low/negative economic growth may be more

significant as its effects affect the living standards of all Singaporeans as well as it could
result in other goals not being achieved as well.

Level Knowledge, Application, Understanding and Analysis Marks

L3 • A well-developed and balanced discussion that addresses the 8-10
significance of structural unemployment relative to other types of
unemployment and other macroeconomic problems.
• Good analysis and application of those macroeconomic problems to the
context of Singapore.
L2 • An under-developed or one-sided discussion that addresses the 5-7
significance of structural unemployment relative to other macroeconomic
problems.

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• For an answer with very little application to Singapore (largely theoretical

with no examples)
L1 • A purely descriptive answer lacking economic analysis. 1–4
• Merely listing of types and causes of unemployment.
• Contains many conceptual inaccuracies
Up to 5 marks of evaluation
E3 • Judgements are well-explained and supported by sound economic 4-5
analysis.
• For an answer that builds on appropriate analysis to come to an
evaluative conclusion on why a particular macroeconomic problem is
most significant in Singapore due to prevailing economic situation, size of
impact and interconnectedness of macroeconomic goals.
E2 • For an answer that makes some attempt at evaluation or a conclusion 2-3
that answers question and attempts to explain judgement and base it on
analysis.
E1 • For an answer that gives unsupported evaluative statements. 1

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Question 3

3. Weak economic growth because of the sluggish global economy is having an

impact on jobs in Singapore, with unemployment rate on track to rise. This is
worsened by unrelenting technological changes that leaves old skills obsolete.
Source: The Straits Times, 30 Oct 2015
(a) Explain the causes of unemployment faced by open economies such [10]
as Singapore.
(b) Discuss whether a fall in real GDP will necessarily lead to a worsening [15]
in Singapore’s standard of living.

(a) Explain the causes of unemployment faced by open economies such as [10]
Singapore.
Suggested Approach:
Answer requires students to discuss the causes of unemployment in open economies such
as Singapore. As the time period is not stated, students may discuss the types of
unemployment that open economies faces, using Singapore as an example. Students are
expected to make use of the preamble and explain that the types of unemployment should
include cyclical and structural. For each type, there is a need to explain what it is and
reasons why it occurred.
Introduction

• Define unemployment - Unemployment refers to the number of people of working

age who are willing and able to work, but currently not engaged in paid jobs, despite
an active search for work. It is the condition of the economy in which some factors of
production are not being used in the production of goods and services.
• Explain what an open economy means – An economy which is open to external flows
and dependant on trade. Thus an open economy like Singapore is particularly
susceptible to external shocks. Singapore’s economy is export driven whose trade
accounts for almost 4 times of GDP.
• As stated in the preamble, unemployment was possibly caused by slow economic
growth and technological changes i.e. possibly cyclical, structural and perhaps
frictional unemployment.
Body

(Requirement 1: Cyclical/Demand-deficient Unemployment)

Cyclical unemployment
• As open economies are very heavily dependent on trade, this will make open
economies such as Singapore particularly affected by changes in the trade cycle,
which leads to cyclical unemployment due to its susceptibility to external shocks.
• Cyclical unemployment: occurs when the economy is at the recessionary phase of the
trade cycle. It is caused by a decrease in aggregate demand (from either internal or
external problems).
• This results in a reduced demand for goods and services and thus this will lead to a fall
in demand for labour. Thus giving rise to demand deficient unemployment.
• As Singapore is an open economy who is extremely dependent on trade, the slowdown
in growth in the global economy will result in a decrease in demand for Singapore’s
exports.
• Example: When the US faced the subprime crisis in 2008, this led to the contraction of
the US economy and hence resulted in a fall in income in the US. As US is one of

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Singapore’s main trading partners, this resulted in a fall in demand for Singapore’s
exports such as tourism services, export of biomedical services, education and
semiconductors etc. When X falls, demand for labour would fall; bringing about cyclical
unemployment in Singapore.

Transition Statement: Besides being open to trade, open economies like Singapore are
open to new technologies and changes in the economy as many foreign firms who set up in
Singapore will bring along their technologies as well.
(Requirement 2: Structural and Frictional Unemploymment)

Structural unemployment
• Due to globalisation, this leads to the exchange of many technologies and transfer of
knowledge and skills from one country to another. This means that the Singapore
government constantly evaluate the structure of our economy so that it remains
competitive in the global economy. This results in the restructuring of the economy as
well as unrelenting technological changes that leaves old skills obsolete.
• Structural unemployment refers to the mismatch between the skills possessed by the
workers and those required by new industries. This results mainly from immobility of
resources (e.g. geographical and occupational immobility) when the structure of the
economy changes or when there are permanent changes in demand and supply
conditions.
• Structural unemployment in Singapore is very dominant as the country constantly
moves from industry to industry due to its changing comparative advantage. As the
country moves from the secondary to the tertiary sector, workers finds itself with a
mismatch between their skills and the requirements of new jobs. Singapore moved
from manufacturing (especially in the areas of chemical, electronics and engineering)
in the 1990s to R&D (especially in the areas of environmental & water technology,
biomedical sciences and interactive & digital media) in the millennium. This hence
resulted in the workers not having the suitable set of skills which is required for these
new jobs.
• Automation can cause structural unemployment as people are made unemployed
because of capital-labour substitution (which reduces the demand for labour). Many of
the unemployed from low skills industry have found it difficult to gain re-employment
without an investment in re-training. This problem is one of occupational immobility.

Transition statement: Due to the changes in the structure of the economy and new
technological changes, this could result in workers taking a longer time to find a suitable job,
worsening frictional unemployment.
Frictional unemployment
• Frictional unemployment is associated with normal labour turnover and is part of the
natural rate of unemployment.
• Open economies can cause frictional unemployment to occur due to freer flow of
foreign workers into the labour market. This will pose more competition to search for
jobs in the labour market.
• New workers entering the labour market (such as university graduates) may take time
to find appropriate jobs at wage rates they are prepared to accept. Many are
unemployed for a short time whilst involved in job search. Imperfect information in the
labour market may make frictional unemployment worse if the jobless are unaware of
the available employment opportunities.

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• Example: Job hopping in Singapore is increasing, especially in the finance and

accounting sector, due to better remuneration, promotion, an overseas posting or more
flexible work arrangements. This will give rise to higher frictional unemployment due to
the time needed to search for a new job.

Conclusion
Unemployment in Singapore could be due to a combination of the different types of
unemployment. It is crucial to know the type of unemployment so that appropriate measures
can be used to deal with them. The most problematic of Singapore’s unemployment would
be cyclical unemployment due to Singapore being trade dependent and hence particularly
susceptible to external shocks.

Level Knowledge, Application, Understanding and Analysis Marks

L3 • Good explanation of causes of unemployment in open 8-10
economies such as Singapore with detailed analysis on at
least 2 main types of unemployment i.e cyclical and
structural unemployment.
• Displayed ability to choose the relevant causes pertaining to
open economies and the Singapore context
L2 • Explanation on the causes of unemployment is 5-7
underdeveloped and may not be well-linked to open
economies and contextualised to Singapore.
L1 • Answer shows some knowledge of unemployment but the 1-4
focus predominantly on the types of unemployment rather
than the causes.

• Theoretical analysis without relating to the context of open

economies such as Singapore.

(b) Discuss whether a fall in real GDP will necessarily lead to a worsening [15]
in Singapore’s standard of living.

Suggested Approach:
Students are required to show the positive relationship between GDP growth and standard of
living, and hence how a fall in real GDP will worsen the material standard of living in
Singapore. Answer should exhibit understanding that negative economic growth might not
necessarily translate to worsening in standard of living as there are other factors that affects
standard of living as well, especially in Singapore’s context – more leisure time, shorter
working hours, and a more environmentally friendly community.

Introduction:

o Explain fall in real GDP

GDP is the value of goods and services produced within a country’s borders, i.e. her national
income. The use of real values makes sure that inflation does not overstate the actual of living
standards. An increase in the cost of living would imply that a higher income is needed to
maintain a certain standard of living.
Define standard of living: it refers to quality of life, the welfare of the population and this
consists of both material and non- material welfare.

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o Material – amount of goods and services that individuals in the country have available
for consumption
o Non-material– amount of leisure people consume, life expectancy, standard of
education, amount of pollution

An economy that experiences a fall in real GDP will generally see a worsening in their standard
of living, historically in 2009 where Singapore suffered as part of the global financial crisis.

Body
(Requirement 1: a fall in real GDP will lead to a worsening in Singapore’s standard of
living, in material aspects)

• The fall in real GDP means a fall in national output, which is also national income. This
translates to a fall in purchasing power residents have, hence lower ability to afford
consumption of goods and services to enjoy; and a lower material standard of living.
• In addition, the lower national income will lead to a fall in government tax revenue,
through personal income tax and corporate tax, and even goods and services tax due to
lower spending by consumers. Thus, the Singapore government will also have less
ability to improve healthcare, education and infrastructure, causing a worsening in the
non-material SOL. For e.g the government may have to reduce the amount of subsidy
given to Singaporeans in public schools, or needy families for healthcare under the
CHAS, which will reduce individual’s opportunity to enjoy better intellectual fulfilment and
physical health.
• The higher demand-deficient unemployment experienced may lead to a worsening in
non-material living standards. Unemployment may cause residents to feel stressed
about making ends meet, or a lack of constant routine in work, and engagement in
activities may cause people to feel disoriented and discouraged. Due to a fall in real
GDP, there is a falling demand for goods and services, and hence fewer workers as a
factor of production are needed, which leads to higher unemployment. For instance,
unemployment rates increased to 3.0%, from a usual of 2.1% in 2009 during a fall in
Singapore’s real GDP. That, if prolonged, may have a negative effect on Singaporeans’
mental well-being, worsening standard of living.
• Hence, a fall in real GDP can imply deterioration in the quantitative aspect of standard of
living since it indicates a lower amount of goods and services people can enjoy.

Transition: However, it does not conclusively mean that the quantitative aspect of standard of
living is lower. In fact, it is possible for SOL to be higher or remain at the same level. This may
be due to a lower population, a more equitable distribution of income or an improvement in the
non-material aspect of life.

Evaluation: a fall in real GDP may not lead to a worsening in Singapore’s material living
standards if population decreases at a faster rate.

• In order to measure Singapore’s standard of living more accurately, we should not just use
real GDP but the real GDP per capita instead. Real GDP per capita is Real GDP/population
size. This will allow us to know how much goods and services each consumer actually has
for himself.
• Should the population size fall more than the GDP, this will actually lead to a higher level of
quantity of goods and services available to each person on average and thus, does not
necessarily mean a lower standard of living.
• (EV) This is especially true for Singapore where the birth rates is at record lows of
around 1.4. Also, the government has recalibrated foreign labour policy, curbing the
entry of foreign labour since 2010. However, on the other hand, it seems unlikely that

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population will decline at a rapid rate given the modern developments in healthcare
services, as evident by a low infant mortality rate in Singapore.

Transition: Singapore is a developed nation with one of the world’s highest PPP-adjusted GDP
per capita, so material standards of living is already high. Instead, it is more important to consider
the non-material aspect of standard of living in Singapore.

(Requirement 2: a fall in real GDP may not lead to a worsening in Singapore’s living
standards because non-material aspects may improve)

In addition to the above quantitative aspects, improvements made in the qualitative aspects can
also bring about higher SOL. These include better quality of goods and services, shorter working
hours, a higher quality of lifestyle, which cannot be inferred real GDP figures.
• The quality of goods and services consumed may have improved even though real
GDP has decreased. Such improvements in products and customer services help bring
about a higher level of satisfaction which contributes to the well-being of the society. For
example, although NY of a particular country may have decreased, the consumers may
still get to enjoy a wider range and better quality of the goods like constant improvements
in mobile phones (waterproof IPhone 7) and food creations (cold brew coffee) as the
producers continue to innovate in the hope of stimulating the economy.
• (EV) This is highly probable given the level of high competition in the market.
When the level of consumption is declining, producers may seek to develop their
products instead so that they can retain their market share. Singapore
government recently introduced a new mobile service provider, Circles.life, which
has introduced a sim-only, no contract option for more flexibility, which has also
prompted the 3 traditional providers to do the same.

• Standard of living can also improve despite a fall in real GDP if shorter working weeks
are implemented. For instance, 5- day workweek for the civil service recommended by
the Singapore government some years ago has certainly help to improve the quality of
life, as people experience less stress at work and have more leisure time. This will be in
line with a fall in real GDP as fewer man hours are used for production, but yet living
standards can improve.
• (EV)This is especially pertinent for Singapore, which is touted as one of the least
happy countries in the world, according to the Happy Planet Index, as many
Singaporeans complain of high stress levels, busy working schedules and a lack
of work-life balance.

• Another aspect that can cause SOL to improve, although real GDP has fallen is becoming
a more environmentally friendly community and greener society. There is a potential
trade-off between GDP growth and environmental standards, due to the creation of
negative externalities or depletion of natural resources. Instead, a fall in real GDP and
less production may lead to less pollution through the use of fossil fuels that create
carbon emissions. In addition, with a better environment, it helps improve the physical
health of residents, bringing about better non-material standards of living.
• (EV) However, for Singapore, there are policies in place to ensure the environment
is taken care of for e.g Singapore Green Plan to conserve and protect the
environment, and so the improvements in the environment are unlikely to
compensate the fall in material living standards due to lower real GDP.

*Note: Students are not required to mention every point as long as 2-3 points are well-
elaborated.

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Conclusion:
Guiding questions – what are some conclusive ideas or points you want to raise, to
synthesis all your various arguments?
Suggestions:
1) Considering material versus non-material SOL
• Real GDP per capita can indicate whether the material standard of living has indeed
worsened due to a fall in real GDP. But, the GDP figures have neglected the non-material
aspect of living standards. Other indicators like the pollution standards index and length
of working hours should be supplemented for a more holistic picture. Alternatively, other
indicators like the Human Development Index and Measure of Economic Welfare can be
used instead.
• Furthermore, in recent years, Singaporeans have expressed unhappiness about
overcrowding on public transport systems and high housing prices, in part driven by a
rapidly increasing foreign migrant population. The curbing of foreign workers may lead to
a slowdown in our economy, and lower real GDP. However, it may lead to better non-
material standard of living because of less overcrowding – lower economic growth in
population density, and a moderated demand for housing, schools and public
transportation.

2) Considering the role of the government

• Regardless of the fall in real GDP, living standards in Singapore are unlikely to worsen
significantly because of active policies and intervention by the government to support
employment and living standards during economic downturns – e.g. Job Credit Scheme
introduced in 2009’s recession. Additional policies such as Pioneer Generation
Packages, or Senior Public Transport vouchers have been made available to ensure
health and transportation remains affordable for the retired elderly, which will maintain a
certain level of living standards, despite falling real GDP.

3) Considering the duration and severity of the fall in real GDP

• The ultimate effect of a fall in real GDP on Singapore’s standard of living also depends
on how prolonged this fall is, as well as the extent that real GDP falls. Should the fall in
real GDP only last for a short period (e.g. 6 months) and to a small extent, then
households would be able to tide over this fall in incomes by relying on their savings.
Singapore is known to have relatively high rates of savings, as Asians, and so their
purchasing power would not be significantly reduced. The Singapore government is also
known budget surplus yearly, and would likewise use these reserves to continue spend
for the population’s non-material living standards.

4) Considering the root cause of the fall in real GDP and scope for government
intervention
• Despite the government’s policies and reliance on household savings which could
sustain a certain level of standard of living for consumers, the root cause of the fall in real
GDP must also be considered. Should the fall in real GDP arise from a fall in AD, this can
be partially countered by a rise in Government expenditure. This will mean AD and NY
does not fall too much, thus standard of living will only fall to a limited extent as the
government is able to intervene more easily and quickly.
• However, should the fall in real GDP arise from a fall in AS, due to a falling productivity,
or rising wages due to a tightening foreign labour market, the fall in standard of living
would be more severe. This will worsen standard of living significantly because it is a
structural rigidity issue, which will require a longer time to solve. The government would
need implement education and retraining, or a restructuring for higher productivity, which
means the fall in real GDP is harder to solve and would affect living standards more.

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Level Knowledge, Application, Understanding and Analysis Marks

L3 ➢ For a well-balanced and well-elaborated answer that show that 8-10
a fall in real GDP does not necessarily mean worsening in
standard of living.
➢ Good use of examples to apply to Singapore’s context.
➢ High L3 for students which point on the importance of using
real GDP per capita as a measure of standard of living despite
its limitations.
L2 o For a balanced but undeveloped explanation 5-7
OR A well-developed but one-sided answer
➢ For an answer with very little application to Singapore (largely
theoretical with no examples)
L1 ➢ Superficial outline/listing of the problems of using real GDP 1-4
OR
➢ For an answer with limited relevant ideas to the given context,
containing a significant amount of conceptual errors.

Allow up to 5 additional marks for evaluation

E3 For judgement containing well-supported economic analysis. E.g. How 4-5
fall in real GDP will allow for better environment standards and income
equity but yet economic growth could provide resources to combat these
problems; Significance of limitations in relation to nature of Singapore’s
economy (developed, active government intervention, social problems –
rising income inequity, rising dissatisfaction about stress and
overcrowding)

E2 For unexplained judgments that are not supported by economic analysis. 2-3
E.g. Some mention of certain limitations; some limitations are more
significant in Singapore but without reasons
Or single comment that is well-explained and supported with economic
analysis

E1 Judgments are made, but they are unsubstantiated and sweeping. 1

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