2016 Suggested Essay Answers (Students) MM

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Suggested Answers to A Level 2016 H2 Economics (ESSAYS) by Hwa Chong Institution Economics Unit
Question 1
The price of a pair of jeans can be as little as S$20 or as much as S$500
(a) Explain what might cause price elasticity of demand and cross elasticity of demand to be different for
different products. [10]
(b) Assess the likely effects of a rise in price of one brand of jeans on the revenue earned by both retailers
of that brand of jeans and those who sell other related goods. [15]
Part (a)
Introduction
● The price elasticity of demand (PED) measures the degree of responsiveness of quantity demanded of a good
to a change in its own price, ceteris paribus. There are various determinants which affect the value of PED
across different products and these include the availability of substitutes, degree of necessity, proportion of
income spent on the good and the time period of analysis (under time constraint, 2 factors suffice – so decide
on the 2 factors and make mention in the introduction).
● Cross elasticity of demand (CED), on the other hand, measures the degree of responsiveness of demand for
one good, say product A, to a change in the price of another good, product B, ceteris paribus. CED is essentially
affected by how close product B can complement or substitute product A or both are not related.
Price elasticity of demand
● Price elasticity of demand conforms to the law of demand, which states that there is a negative relationship
between price and quantity demanded, hence the sign for PED is negative for most goods so the analysis of
PED will be thus be more about the value and not about the sign.
● Explain what is meant by IPEDI>1 and <1.
● Determinants of PED value (explain any 2 with elaboration and exemplification)
Availability of Substitutes
● The most important determinant is the number and closeness of substitutes. The greater the number of
substitutes available for a good and the closer the substitutes, the more price elastic the demand for that
good is. For instance, consumers have a wide range of choices for bread spreads such as butter,
margarine and jam. Thus demand for a particular spread tends to be price elastic. This is because more
consumers are likely to switch to these alternatives when the price of the good increases. Conversely, the
demand for electricity is likely to price inelastic as there is no close substitute for electricity.
● Additionally, the number and closeness of substitute goods also depend on the broadness of the definition
of the good. The broader the definition, the more price inelastic the demand as it is harder to find
substitutes. For example, eye glasses in general tend to have a price inelastic demand as compared to
Oakley eye glasses (a specific brand of eye glasses), which probably has a price elastic demand given
that there are many other close substitutes brands to choose from.
Degree of Necessity
(i) Basic Goods
● Price elasticity of demand is related to whether the goods are necessities. If the goods are necessities, the
consumption of such goods is essential and usually cannot be delayed or postponed. These are goods
that are required for daily consumption in order to sustain a basic quality of life. It is easier to forgo luxuries
but not necessities. As such, the demand tends to be relatively price inelastic. E.g. Staple food items like
rice and bread, utilities, clothing and public transport.
(ii) Habit / Addiction
● Demand for a good tends to be price inelastic if the good is bought on a habitual basis. For instance, many
habitual smokers and alcoholics would find it difficult to cut down on smoking or drinking even if prices of
these goods were to rise. This is because they are addicted to the product and cannot easily change their
consumption habits in response to price changes.
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Proportion of Income
● The higher the proportion of income spent on a good, the more price elastic is the demand. E.g. Demand
for table salt is likely to be relatively price inelastic as consumers spend a tiny fraction of their income on
it. Consumers would have little difficulty paying for it and hence unlikely to reduce much consumption of it,
even if there is a relatively large percentage increase in the price of salt. On the other hand, if the price of
a big-ticket item like housing increases, consumers will respond more than proportionately because many
might simply be unable to afford housing with the increased prices.
Time period [T-factor]

● In general, the demand for most goods and services would be relatively price inelastic in the short run and
relatively price elastic in the long run. This is because when prices rise, consumers may take time to adjust
their consumption patterns and find suitable alternatives. The longer the time period after a price change,
the more price elastic will be the demand for the good as consumers have more time to make the
necessary adjustments in response to the price change. A good case in point is the crude oil market in the
70s. Between December 1973 and June 1974 the price of crude oil quadrupled, which led to large
increases in the prices of petrol and central-heating oil (which are produced from crude oil). Over the next
few months, there was only a very small reduction in the consumption of oil products. This is because
demand was highly price inelastic as consumers needed to drive their cars and heat their houses to
maintain their quality of life. Over time, however, as the higher oil prices continued, new fuel-efficient cars
were developed. Subsequently, many drivers switched to smaller cars which are more fuel-efficient.
Similarly, households switched to gas or solid fuel central heating, and spent more money insulating their
houses to save on fuel bills. Demand for oil thus became much less price-inelastic in the long run.
Cross elasticity of demand
● Cross elasticity of demand, unlike PED, can be both positive and negative. This depends on the relationship
between the 2 goods analysed.
Positive Cross Elasticity (CED>0): substitutes

● If a pair of goods serve the same or similar purpose/function to satisfy similar wants, they are substitutes
and have a positive CED in which a change in price in good X will cause the demand for good Y to change
in the same direction. For example, sling bags and handbags are substitutes, a decrease in the price of
one good will lead to a fall in the demand for the other and vice-versa.
Negative Cross Elasticity (CED<0): complements
● If a pair of goods can be used together to satisfy a want, then they are complements and have a negative
CED in which a change in price in good X will cause the demand for good Y to change in the opposite
direction. For example, mobile phones & mobile network subscription plans are used together. A fall in
the price of mobile phones will lead to the rise in demand for mobile subscription plans.
● Once the sign has been established, the magnitude/value of CED depends on the closeness or strength of the
relationship. The stronger or closer one good is a substitute or a complement of another, the bigger the effect
of a change in price of the first good on the demand of the substitute or complement. Hence, the greater the
magnitude of cross elasticity of demand.
● In the above example of mobile phones and mobile network subscriptions, the complementary relationship is
very strong as one can argue that they have very little value without each other. The CED value will like to be
│CED│>1. That means, for example, a fall in price of subscription plan will results in a more than proportionate
rise in demand for mobile phones. On the other hand for weak complements, the value is likely 0<│CED│<1.
That means, a fall in price of good A will result in a less than proportionate rise in demand for good B.
● On the other hand, let’s say people are more willing to substitute coffee for tea rather than hot chocolate for tea,
then the cross elasticity of demand for coffee with respect to tea will be greater in magnitude than that for hot
chocolate with respect to tea. When 2 goods are perfect substitutes for one another, their cross elasticities of
demand tend towards positive infinity.
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● The less closely related one good is to another, the smaller the effect on demand of the first good as the result
of a change in the price of a substitute or complement. Hence, the smaller the magnitude of cross elasticity of
demand. When two goods are independent goods i.e. unrelated to each other, their cross elasticity of demand
will be zero. For instance, butter and golf balls. Thus, when the price of butter falls, there is no effect on demand
for golf balls.
Mark Scheme
To score L3, you need to explain

● Both PED and CED
● Both the sign and magnitude of each elasticity
● At least one determinant of each elasticity
● At least 3 distinct determinants in total for both elasticities
(b) Assess the likely effects of a rise in price of one brand of jeans on the revenue earned by both retailers
of that brand of jeans and those who sell other related goods. [15]
Introduction
Different brands of jeans would have different price elasticities of demand (PED) which would affect the impact of a
price increase on their total revenue. For related goods, the impact depends on their relationship as complements
or substitutes, which affects the sign of their cross elasticity of demand (CED), positive for substitutes (CED>0) and
negative for complements (CED<0). For substitutes, the closeness of their similarities would determine the
magnitude of CED and for complements, how integral they are to each other’s function.
Impact on retailers of the brand of jeans whose price has risen
Price ($) Figure 1: Brand A jeans Price ($)

Figure 2: Brand B jeans
A B
A B 15
11
10 E
C D 10 E
C D
DD
DD
F G F G
0 150 200 Quantity (m) 0 180 200 Quantity (m)
● If the demand for the pair of jeans is price elastic i.e. PED > 1, this means an increase in price would lead to a
more than proportionate decrease in quantity. As seen in fig 1, an increase in price from $10 to $11 (+10%)
resulted in a more than proportionate fall in quantity demanded from 200 to 100 units (– 25%). The loss in total
revenue due to the fall in quantity (area DEGF) is greater than the gain in total revenue due to the increase in
price (area ABDC). Hence the total revenue has decreased for Brand A jeans following a price increase.
● If the demand for the pair of jeans is price inelastic, an increase in price would lead to a less than proportionate
decrease in quantity demanded. As seen in Figure 2, an increase in price from $10 to $15 (+50%) resulted in
a less than proportionate fall in quantity demanded from 200 to 180 units (–10%). The loss in total revenue due
to the fall in quantity (area DEGF) is smaller than the gain in total revenue due to the increase in price (area
ABDC). Hence the total revenue has increased for Brand B jeans following a price increase.
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Impact on retailers selling goods which are related to the brand of jeans whose price has risen
● As for the impact on related goods, the directional change in revenue depends on the nature of the relationship,
i.e. substitutes or complements where the extent of the change depends on the strength of the relationship. As
there are many different brands of jeans sold by different retailers, these jeans are substitutes to one another.
The CED between these different brands of jeans will be positive i.e. CED >0 because a rise in the price of
brand A will causes some consumers to switch to buying brand B, thus causing the demand for brand B to rise.
For strong substitutes, the CED magnitude is likely to high, thus an increase in price of Brand A would lead to a
large increase in demand for Brand B, as can be seen from the shift of D0 to D2 in fig 3 and total revenue will
increase from 0P0E0Q0 to 0P2E2Q2. For weak substitutes, the CED magnitude is likely to low, meaning the
demand will rise by less from D0 to D1 and total revenue will increase less from 0P0E0Q0 to 0P1E1Q1.
Figure 3: Demand change of related goods
Price S0
P2 E2
P1 E1
P0 E0
P3 E3
D2
P4 E4
D1
D3 D0
D4
Qty
0 Q4 Q3 Q0 Q1 Q2
● Goods like belts are instead complementary to jeans and should thus have a negative CED i.e. CED <0. This
is because a rise in the price of a particular brand of jeans will cause some consumers forgo their purchases of
that brand of jeans and hence the purchases of belts that would have otherwise been used together. For strong
complements, the magnitude of CED will be high, hence a rise in a particular pair of jeans would lead to large
decrease in demand, as seen from the shift of D0 to D4, hence total revenue for retailer of belts will see a drop
from 0P0E0Q0 to 0P4E4Q4. On the other hand, for weak complements, the magnitude of CED will be low, hence
a rise in a particular pair of jeans would lead to small fall in demand, as seen from the shift of D0 to D3, where
total revenue will falls by a smaller amount from 0P0E0Q0 to 0P3E3Q3.
Conclusion
● The preamble mentions 2 types of jeans those that cost $20 and those that cost up to $500. Those that cost
$20 are likely to be cheap generic ones which consumers are likely to buy for everyday use.
● Buyers of such jeans are thus likely to consider them as being necessities hence their PEDs are likely to
inelastic. A rise in the price of such jeans will cause the quantity demanded of such jeans to fall less than
proportionately, thus enabling the retailers of such jeans to earn higher revenue. In contrast, jeans which costs
$500 are likely to be expensive branded jeans which consumers buy for as gifts for themselves or others. Such
jeans are likely to be considered as luxuries by most of its consumers, hence their PEDs are likely to elastic. A
rise in the price of such jeans will cause the quantity demanded of such jeans to fall more than proportionately,
thus causing the retailers of such jeans to earn less revenue.
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● Consumers of cheap generic jeans are unlikely to be brand conscious and thus may not have much brand
loyalty Cheap generic therefore tends to be close substitutes to each other, causing their CED to positive and
high. Should the price of a particular brand of such jeans rise, many buyers are likely to switch to buying other
brands, thus causing the demand and revenue of retailers selling these other brands to rise substantially. In
contrast, customers of expensive branded jeans are likely to be more brand conscious and thus have stronger
brand loyalty, so other brands are likely to be weak substitutes, hence the CED will likely be positive but low.
Should the price of a particular brand of such jeans rise, most buyers are unlikely to switch to buying other
brands, thus the demand and revenue of retailers selling these other brands will only rise marginally. Such
reasoning can also be applied to complements such as belts, where retailers of generic belts that are
complements to generic jeans are likely to face a large fall in demand and revenue, whereas retailers of branded
belts which are complements to branded jeans are likely to face a small fall in demand and revenue.
Mark Scheme
To score L3, you need to explain the impact of a higher price of a particular brand of jeans on
● The retailer of such jeans
● Other retailers selling related goods
● Total revenue and not just price and/or output
To score E3, you need to take clear and convincingly justified stands on
● The extent of change in total revenue for retailers of different types of jeans and different related goods
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Question 2
Singapore’s spending on healthcare is about 4% of GDP. This is lower than many developed countries,
However, Singapore’s population is ageing and economic growth may not be as high as before. The
government’s share of national healthcare expenditure is expected to rise from 33% in 2012 to over 40% in
the future.
Source: adapted from Singapore Public Sector Outcomes Review, 2014
(a) Explain why a government intervenes in the provision of healthcare. [10]
(b) Discuss how the opportunity cost of increased healthcare expenditure differs depending on whether it
is financed by individuals or the Singapore government. [15]
Part (a)
Introduction
● Government intervenes in the provision of healthcare due to the presence of different sources of market failure
– merit good (presence of positive externalities and imperfect information) and equity reasons.
● Merit goods are private goods that have been deemed by the government (important to mention government)
as socially desirable but under-consumed when left to the free market.
Positive externalities
● Give examples of ‘healthcare’ and focus on a particular area such as vaccine against common disease.
● State that vaccine generates positive externalities and define the term.
● Explain that the presence of positive externality leads to a divergence between private and social benefits which
has third party benefit such as vaccinated people not spreading diseases to others and resulted in a healthier
workforce that benefit the employers (define and exemplify MPB, MPC, MEB and MSB=MPB+MEB)
Figure 1: External benefit from healthcare consumption

Price
C
MPC=MSC (since MEC=0)
MEB at Qm
B
PS
Pm A
MSB = MPB + MEB

MPB
Qm QS Quantity
● Diagrammatic analysis: Illustrate and explain how Qm (MPB=MPC) and Qs (MSB=MSC) come about and result
in welfare loss of ABC.
● Thus, government intervenes by providing subsidies that reduces MPC so as to increase output to Qs.
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Imperfect Information
● Consumer demand for healthcare (e.g. regular health screenings) is lower at MPB perceived as they
underestimate the actual benefit of such services.
Figure 2: Imperfect information on actual MPB of health screening
Price MPC
C
B
A
MPB actual (perfect info)
MPB perceived (imperfect info)
Qm Qm’ Quantity
● Diagrammatic analysis: explain how Qm and Qm’ come about and result in welfare loss of ABC.
● Thus, government intervenes by educating the public to raise MPB perceived towards MPB actual.
Equity reasons
● Healthcare, especially for hospital care can be very costly, as the treatments can be highly complex
● If left the free market, many of the poorer households may not be able to afford such care, which will then severely
reduce their welfare as they will have to either live with their ailments (which will affect their quality of life and
maybe even their productivity and income) or die from it
● Subsides are therefore required to make such healthcare more affordable and accessible to the poor
Mark Scheme

● At least two different sources of market failures
● How such sources lead to welfare losses
● How government intervention can reduce welfare losses (otherwise cap at 8m)
(b) Discuss how the opportunity cost of increased healthcare expenditure differs depending on whether it
is financed by individuals or the Singapore government. [15]
Why is opportunity cost of healthcare rising in Singapore?
● Opportunity cost refer to the next best alternative forgone when a decision is made to allocate resources to the
production or consumption of a good
● If more resources are allocated to healthcare spending, then less resources will be available for the production
or consumption of other goods
● As Singapore is facing an aging population, it is inevitable that Singapore’s overall health care spending will rise
as the old tend to have more health ailments that the young
● With Singapore’s economic growth being expected to decline, if healthcare spending were to rise faster than
GDP, healthcare spending as a proportion to GDP is expected to rise
● It is thus important to keep healthcare costs down, otherwise the opportunity cost of ballooning healthcare
expenditure will result in increasingly severe economic trade-offs for both households and the government
● Financing of healthcare can be private (out-of-pocket payment and private health insurance premiums) or public
(subsidies for healthcare providers and subsidies to offset health insurance premiums)
● The essay aims to argue why individual private financing may be better at keeping healthcare costs down before
providing counter arguments as to why government financing may instead be better
● It then concludes by assessing whether Singapore should rely more on private or public financing to keep
healthcare costs under control
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Why may individual rather than government financing be better at curbing healthcare costs?
● If healthcare is financed by individual households, they will weigh the expected marginal benefits of a treatment
against its marginal costs and will only proceed to undertake that treatment if the former is greater than the latter
● In other words, individuals will only spend on a treatment if they perceive it to be ‘value-for-money’ and are thus
less likely to spend excessively on costly new drugs and procedures which are may only be marginally better
than existing established ones which are likely to be substantially cheaper
● The same analysis can also be applied for health insurance as households will economise on such spending by
buying policies which provide the optimal balance between co-payment and coverage rather than buying
excessively costly policies that provide full coverage for all healthcare costs
● In contrast, if medical bills were financed by the government, the marginal private costs of treatments and
insurance policies to individuals will be lowered
● Individuals are thus more willing and able to spend on healthcare treatments and insurance and thus opt for more
costly drugs, procedures and insurance policies, which inevitably leads to the country channelling more resources
to the provision of healthcare
Why may government rather than individual financing be better at curbing healthcare costs?
● The argument that individuals can effectively to economise on healthcare treatments and insurance rests on the
premise that there is perfect information with regards to healthcare treatments and healthcare costs
● However, as medical treatments and costs can vary substantially depending on the seriousness of the ailment
and complexity of the treatment, patients often know much less about such treatments and costs as compared
to doctors
● Such asymmetric information thus provides doctors the opportunity to mislead their patients into undertaking
more expensive treatments so that they can enjoy higher earnings
● Such supplier induced demand will cause many patients to opt for unnecessary costly drugs and procedures and
thus inflate overall healthcare costs for the country
● Furthermore, to protect themselves from such unpredictable and potentially financially crippling healthcare
spending, households have a greater incentive to purchase insurance policies that provides full coverage without
co-payments
● When this happens, neither the patient nor the doctor has any incentive to economise on healthcare treatments
since the costs are now borne by a third party which is the insurance company
● Moral hazard arises as patients demand and doctors recommend the best but most costly treatments available,
which then translates to further escalations in healthcare spending
● If the government were to indiscriminately finance all spending on healthcare treatments and insurance, the
extent of overconsumption and production arising from supplier induced demand and moral hazard will even be
greater
● However, the government can instead selectively subsidize the more cost-effective treatments and insurance
policies which incorporate the optimal balance between coverage and co-payments
● Households are thus more likely to seek such treatments and purchase such policies over other more costly non-
subsidize treatments and policies, which will then reduce the extent of supplier induced demand and moral
hazard, thus helping to keep overall healthcare spending at bay
Which form of financing is more likely to slow down the rise in healthcare spending in the Singapore context?
● In the Singapore context, subsidies for hospital care are means tested and only channelled through public
hospitals which are non-profit oriented in nature
● Doctors in these hospitals have no profit motive and hence no incentive to recommend unnecessary and
expensive treatments, thus the extent of supplier induced demand and moral hazard is limited
● Instead, the prolonging of hospital stays and the prescribing of unnecessary tests will add to the heavy workload
of hospital staff, so doctors in public hospitals will instead try to cut down on such procedures
● As for health insurance, subsidies are currently only provided for basic Medishield Life Plans which incorporate
co-payments and not for higher-end Integrated Shield Plans which provide full coverage
● This incentivizes individuals to purchase the former rather than the latter, which again helps reduce moral hazard
and hence excess consumption
● In conclusion, given Singapore current healthcare ecosystem, government financing of healthcare is unlikely to
cause overall healthcare cost to escalate as such subsidies are targeted though government and not private
suppliers and for basic and not higher-end insurance coverage
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● Relying purely on individual financing will instead cause healthcare cost to inflate further and is likely to be highly
inequitable as the poor may find hospital care and health insurance unaffordable
● Hence, Singapore should rely more on public rather than private financing of healthcare as this should help keep
overall healthcare spending in check and thus reduce the opportunity costs of such spending
Mark Scheme

● Why private financing may result in lower healthcare spending
● Why public financing may result in lower healthcare spending
● The impact on both medical treatments AND insurance (otherwise cap at 8)
● At least three distinct points of analysis
To score E3, you need to take a clear, comprehensive and convincingly justified stand on
● Whether private or public financing will like result in lower healthcare costs for Singapore
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Question 3
In Australia, small and remote communities face high and stable prices for petrol. The petrol is supplied by
one or two small petrol stations owned by small independent retailers. Prices are lower and more volatile
in the large cities, where there are a large number of big petrol stations owned by a small number of big oil
companies.
Source: Australian Institute of Petroleum
(a) Explain why less market competition might lead to higher and more stable prices. [10]
(b) Assess whether differences in the level of competition are likely to be the main reason for differences
in the retail prices of petrol in rural and urban areas of Australia. [15]
Part (a)
Note: To answer this question, it is necessary to explain why less competition leads to HIGHER and MORE
STABLE price while more competition leads to LOWER and LESS STABLE price.
Introduction
● State extreme case of no competition is in the presence of a monopoly, less competition is in an oligopoly and
stiff competition will be in a monopolistic competition and perfect competition (the other extreme).
● This essay seeks to explain why less market competition in an oligopoly might lead to higher and more stable
prices than in a monopolistic competitive market.
Body
● Firms make pricing and output decision based on profit maximisation where MC=MR.
● Any change in MC and MR due to changes in variable costs and demand respectively would change price.
● But the level of competition also affects firms’ decision whether they will change price ultimately.
Price Less competition: Behaves like an More competition: Behaves like a monopolistic
oligopoly/ duopoly competitive firm
Assuming similar market size and the difference is due to less or more competition.
Level Higher price Lower price
● High barriers to entry lead to dominant ● Low barriers to entry lead to many firms with
firms with large market share. small market share.
● Higher and more price inelastic ● Much lower and price elastic demand for
demand since there are lesser individual firms since there more close
substitutes. substitutes.
● Such high price is accompanied by ● Even if there is high demand that gives rise to
supernormal profits in the long-run high price and supernormal profits in the short-
since there are high barriers to entry. run, due to low barriers to entry, there will be
more firms entering into the market and the
demand for existing firms will fall which leads to a
lower price and finally earn only normal profits in
the long-run.
● Illustrate a rev-cost diagram that ● Illustrate a rev-cost diagram that shows low
shows high AR/MR and LRAC/LRMC, AR/MR and LRAC/LRMC, earning normal profits.
earning supernormal profits.
Note: Draw these 2 diagrams side by side to show the contrast of a low and high price.
Stability More stable Less stable
● Explain the mutual interdependence of ● Firms make decision independently – change
oligopolistic firms e.g. Price rigidity price when there’s change in variable cost that
according to kinked demand theory changes MC and/or change in demand (AR) that
changes in MR.
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Mark Scheme

● Why less competition may lead to higher prices
● Why less competition may lead to more stable prices
● At least 3 distinct point of analysis
Note: If we are not bothered about the link between (a) and (b), then the approach can be quite different. To explain
and illustrate less and more competition leading to higher and lower price, there is no need to differentiate oligopoly
and monopolistic competition. In 1 diagram, draw 2 pairs of AR/MR in which the higher pair means lesser competition
result in higher price and the lower pair for more competition results in lower price. But for the stable price element,
it will still be the kinked demand theory.
(b) Assess whether differences in the level of competition are likely to be the main reason for differences
in the retail prices of petrol in rural and urban areas of Australia. [15]
Introduction
● In Australia, small and remote communities face high and stable prices for petrol that is supplied by one or two
small petrol stations owned by small independent retailers which seems to be a characteristic of a monopolistic
competition.
● On the other hand, prices are lower and more volatile in the large cities, where there are a large number of big
petrol stations owned by a small number of big oil companies which seems to be characteristics of oligopolistic.
● Both these situations seemingly contradict to what has been explained in part (a).
● The essay thus aims to assess whether the difference in the level of competition is the main reason for the
difference in the rural vs urban petrol retail prices or whether there could be other more important reasons.
Thesis: Competition is lower in rural areas which leads to higher and more stable prices as compared to urban
areas
● In the rural areas, less competition arises from the lack of good public transport substitutes, which are likely to
be present in city, such as trains, buses and taxis, thus, most people drive to travel around in rural areas.
● As there is no critical mass in rural areas which means limited revenue, even though barriers to entry are low,
big petrol companies may not deem profitable to set up stations there.
● Thus, there is only one or two small retailers and with the lack of good alternatives to driving, individual firm’s
demand may be rather high and price inelastic, giving them the ability to charge high price.
● Furthermore, even though they are small independent retailers, they actually behave like a localised duopoly.
● Price is stable as it is probably rigid as explained in part (a) according to the kinked demand theory or the two
retailers could easily collude to set high price since the number of firms is small.
● In the cities, there is more competition as the big oil companies have the resources to open many petrol stations,
as well as the presence of good substitutes to driving, which give commuters many choices.
● Thus, demand for the petrol retailers is more price elastic so prices are low and more volatile as the large retailers
may be undercutting each other’s price to get a larger market share (price war).
Anti-thesis: There could be other reasons why prices are higher in rural areas than in urban areas
● Differences in costs result in price differential
o Freight and storage costs

▪ Shipping petrol to rural areas could cost more compared to urban areas as Australia is a very large
country.
▪ There could also be additional storage costs where fuel is stored at regional depots before it is delivered
to a retail outlet.
▪ Such costs vary with sales/output and are variable costs which means MC will be higher and based on
profit maximising rule, MC = MR, price is higher as compared to when variable costs are lower.
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o Internal economies of scale (EOS)

▪ Small and remote communities mean less fuel purchased each period and they do not enjoy marketing
internal economies of scale of bulk purchase as compared to larger retailers in the cities.
▪ Thus, smaller firms with higher costs and lack of economies of scale means higher price while large ones
have and can be translated as lower price.
▪ Illustrate with a diagram to show higher AC/MC will result in a higher price as compared to a lower
AC/MC, assuming same AR/MR.
● Differences in sensitivity to international and wholesale prices result in different price stability:
o Rural retailers generally sell lower volumes than urban ones and they also replenish their stocks less often.
o This could mean that changes in international and wholesale prices for fuel, be it higher or lower, would not
be reflected in the rural retailers than in cities where there is faster stock turnover.
o Such delays in responding to international and wholesale prices contribute to the stability of fuel prices in
regional locations compared to the cities.
Conclusion (Final judgment to answer the question directly)
● Higher freight and storage costs may not be a critical factor that leads to higher price as they might not constitute
to a large proportion to the total cost of production.
● Although smaller retailers do not enjoy internal economies of scale as compared to their urban counterparts, they
have other means of lowering unit costs e.g. they can buy and transport fuel in bulk in one big truck and wages
in the rural area might be lower than those in the cities.
● So the cost differences may not be significant and thus is not the key reason to explain the big price differential
in petrol price in the rural and urban areas.
● Differences in costs at best could contribute to the high and low price in rural and urban areas but it cannot
explain the stable price in rural area and the volatility of price in urban areas.
● As explained above, stable and volatile prices could be explained by a lack of competition or the level of sensitivity
to international and wholesale price.
● The difference in the level of competition is therefore the only reason that could explain both the differences in
price level and price stability and thus, it is likely the main reason for differences in the retail prices of petrol in
rural and urban areas of Australia (clear stand).
Mark Scheme

● Why competition may be less in rural areas
● Why else why petrol prices may be higher and more stable in rural areas
● At least three distinct points of analysis
● Whether less competition is the main reason for higher and more stable petrol prices in Australia’s rural areas as
compared to its urban areas
S
Question 4
‘The overall Singapore government budget for Fiscal Year 2013 is estimated to have recorded a surplus of
S$3.9 billion (1% of GDP).’
Source: Recent Economic Developments in Singapore, 6 June 2014, MAS
Assess the likely impact of the budget surplus on the Singapore economy, both domestically and
internationally. [25]
Note possible interpretations of domestic vs international impact

o Domestic: growth, inflation, unemployment vs international: BOP and ER
o Domestic demand (C, I, G) vs international demand (X)
o Domestic costs (wages and rental) vs international costs (imported inputs)
What is meant by domestic and international impact? (Introduction)
● When the government runs a budget surplus, this means that its revenue will exceed its expenditure, thus
resulting in a net withdrawal from the circular flow of income
● Such withdrawals will cause AD to fall, which will then have a contractionary effect on the economy
● The domestic impact can be seen as the impact on firms that produce or sell goods mainly for local market e.g.
retail shops, or firms that rely more on domestic inputs, e.g. personalised services like hairdressers, where the
main bulk of the costs goes to rental and wages
● The international impact can be interpreted as the impact on firms that produce goods mainly for international
markets market, e.g. manufacturing of aircraft engines, or firms that rely heavily on imported inputs, e.g.
manufacturers of processed food
● The essay will first analyse the domestic impact of a budget surplus followed by the international impact and will
conclude by evaluating the extent of these impacts before assessing the overall impact on the Singapore
economy
How can the Singapore economy be domestically affected by a budget surplus?
● Assuming that the government budget is initially balanced, running a budget surplus requires government
spending (G) to be curtailed and/or tax revenues (T) to be raised
● Reducing G directly reduces the demand of firms that supply goods and services to the government
● Raising corporate taxes lowers post tax profits, thus deterring investment demand (I), which then lowers the
demand for capital goods that are produced by local firms
● Raising personal income taxes reduces disposable income, thus curbing consumption demand (C), which then
reduces the demand for consumer goods and services produced by local firms
● The reduction in the demand for goods and services produced by these local firms will cause them to suffer
from lower output, revenue and profits, and may also result in demand deficient unemployment if these sectors
were initially operating below full employment, thus causing domestic workers to suffer as well
● After the initial fall in AD that arises directly from the budget surplus, AD will fall further due to the multiplier
effect
● This effect arises because the initial fall in output and hence income will lead subsequent declines in income
induced consumption, which then causes further reductions in AD, output and income
● However, as part of income is always saved, taxed or spent on imports, the fall in induced consumption will
become increasingly smaller until the multiplier process eventually ceases
● Nevertheless, AD income and consumption will fall by more than the initial budget surplus, thus adversely
affecting the domestic firms and workers that are producing goods and services that cater to domestic
consumers
● Finally, as falling AD causes firms to produce less output, this reduces their demand for commercial, industrial
and retail properties, thus causing rentals to fall, and also the demand for labour which then causes wages to
fall
● The decline in wages and rentals translate to a significant fall in production costs for firms that are reliant on
domestic inputs, thus benefitting such firms
S
How can the Singapore economy be internationally affected by a budget surplus? (Conclusion)
● When a government runs a budget surplus, the resulting rise in government savings (i.e. reserves) raises the
supply of loanable funds in financial markets
● This causes interest rates to fall, which results in hot money outflows that raises the supply of Singapore dollar
in the FOREX market, thereby causing the Singapore dollar to depreciate
● When this happens, the exports produced by local firms become more competitive in international markets, thus
enabling them to benefit from higher demand, revenue and profits and their workers to benefit from higher
employment and wages
● However, a deprecation of the Singapore dollar also causes imported inputs to become more expensive, thus
raising the cost of production of firms which rely on such inputs
● With higher marginal costs, these firms may reduce output, thus lowering their demand for domestic workers,
which may then cause the latter to suffer from reduced wages and increased unemployment
How strong are the domestic, international and overall effects on Singapore’s economy?
● Singapore has high marginal propensity to save (MPS) because of high compulsory social security savings
(CPF), and high marginal propensity to import (MPM) due to a lack natural resources
● With high MPS and MPM, Singapore marginal propensity to withdraw is large, which then translates to a small
fiscal multiplier
● Coupled with only a small budget surplus of 1% of GDP, this suggests that the overall contractionary effect on
the Singapore economy is likely to limited
● Furthermore, as Singapore manages her exchange rate and allows for free international capital mobility as an
international financial centre, she is unable to control domestic interest rates as they follow world interest rates
● Hence, despite the budget surplus, interest rates are unlikely to rise and hence exchange rates are unlikely to
fall so the international impact of a budget surplus will also be limited
● Given that both the domestic and international impact of a budget surplus are limited, the overall impact on the
Singapore economy will be limited as well
● Running budget surplus thus have little macroeconomic effect on the economy, which may partially explain why
the Singapore government has been running structural budget surplus for decades, yet its overall economic
performance has been strong regardless
Mark Scheme

● How the Singapore economy can be affected domestically by a budget surplus
● How the Singapore economy can be affected internationally by a budget surplus
● At least five distinct points of analysis
● The extent of the domestic and international impact on Singapore’s economy and the overall impact
S
Question 5
(a) Explain why macroeconomics policy decision-making is made more difficult by possible conflicts
between government objectives. [10]
(b) Assess the relative effectiveness of the alternative macroeconomic policies that the Singapore
government could adopt to maintain a low rate of unemployment. [15]
(a) Explain why macroeconomics policy decision-making is made more difficult by possible conflicts
between government objectives. [10]
What are the various macroeconomic objectives? (Introduction)
● In terms of macroeconomic goals there are both short and long run goals, where the former involves achieving
macroeconomic stability consisting of low inflation and low unemployment, while the latter involves efforts to
achieve strong and sustained long run growth, hopefully in a sustainable and inclusive manner
● The essay aims to first explain how these conflicts may occur before analysing why policy making is made more
difficult due to such conflicts
Why there may be a conflict between unemployment and inflation?
Figure 1: Trade-off between unemployment and inflation
General Price Level

AS
P1
P0
AD1
AD0
0 Y0 Yf Real National Output

● In Figure 1, when an economy is facing an economic downturn, the current level of aggregate demand at AD0
can only generate an output level of Y0, which is lower than the full employment output level of Yf, thus the
economy is experiencing demand deficient unemployment
● Through expansionary fiscal and monetary policies, the government and central bank respectively can raise AD0
to AD1, so that output is increased from Y0 to Yf, thus reducing such unemployment
● However, as AD rises along the upward sloping portion of AS, some sectors will reach full employment, thus
causing firms to outbid each other for limited resources, thereby raising factor prices like wages and rentals to
rise
● This translates to rising production costs, which forces firms to raise product prices to maintain their profitability
resulting in demand-pull inflation, which can be illustrated by the rise in the general price level from P0 to P1
● This shows that there could be a conflict between the aims of low unemployment and price stability
● The converse is also true, where contractionary demand management policies used to fight inflation can cause
reduced or even negative growth and hence rising unemployment
S
Why there may be a conflict between low unemployment and inclusive growth?
● When a country is facing demand deficient unemployment, expansionary monetary policy via reducing interest
rates can be used to stimulate consumption, investment and hence AD, thus boosting output and employment
● However, lower interest rates also stimulate borrowing for speculation in assets such as stocks and property,
thus causing such markets to boom
● As the richer households tend to own more of such assets than poorer ones, their former’s wealth will grow at
a faster rate than the latter, which will worsen wealth inequality and thus conflict with the aim of inclusive growth
Why do such conflicts make macroeconomic decision making more difficult? (Conclusion)
● Given such conflicts, the government needs to gather information to determine the likely extent of such trade-offs
and consider whether other policies can be used to eliminate or reduce such trade-offs
● And even after the implementation of the policy, the government still needs to observe whether the unintended
outcomes are as according to expectations before deciding whether, when and how to amend the policies if
necessary
● As such information gathering and policy deliberations require time and resources, and with the complexity that
arises from such conflicts raising the likelihood and severity of policy missteps, it can be clearly seen that
macroeconomic policy decisions will inevitably be made more difficult due the existence of such macroeconomic
conflicts
Mark Scheme
● Explains at least two possible conflicts in macroeconomic aims
● Explains why macroeconomic decisions are made more difficult due to such conflicts
(b) Assess the relative effectiveness of the alternative macroeconomic policies that the Singapore
government could adopt to maintain a low rate of unemployment. [15]
What are the policies that can be used to reduce the different types of unemployment?
● Demand deficient unemployment arises when aggregate demand is too low such that the resulting level of real
national output in insufficient to prevent involuntary unemployment
● To reduce such unemployment, both expansionary fiscal and supply-side policies can be used
● Structural unemployment arises when there is mismatch of skills between what is possessed by workers and
what is required by employers
● To reduce such employment, policies can be enacted to facilitate the retraining of workers or to protect the
industries and jobs where such skills are becoming obsolete
● The essay aims to explain how these polices can be used to reduce these two different types of unemployment
before analysing their potential limitations
● It will conclude by assessing the extent of such limitations before recommending which policy is more effective
in reducing these two types of unemployment in the Singapore context
How can demand deficient unemployment be reduced and what are the policy limitations?
● Demand deficient unemployment can be reduced using expansionary fiscal policy, which involves raising
government spending (G) or reducing direct taxes (T) e.g. corporate & personal income taxes
● Raising G will directly boost to AD while reducing corporate taxes will stimulate investment demand (I) and
consumption demand (C)
● The resulting rise in AD will through the multiplier effect, cause AD to increase by more than the initial injections,
thus raising output and employment, thus reducing demand deficient unemployment
● A key imitation of this policy is obviously the size of the multiplier as the smaller the multiplier, the less effective
the policy will be.
● As supply measures can take many forms, this essay will focus on wage subsides (Jobs Credit Scheme) as this
was used by the Singapore government during the 2009 Global Financial Crisis
● Subsidizing wages lowers firms’ production costs, which shifts the AS curve downwards, thus raising real
national output and employment, thereby reducing demand deficient unemployment
S
● The jobs credit scheme also has a more direct impact on incentivising firms to keep their workers as firms who
retrench such workers will not get to enjoy such subsidies, which can provide them with much needed cashflow
to help them tide through a period of depressed demand and revenue
● For example, if such subsidies exceed 50% of wages, then the firms actually gain more from the subsidies than
the labour costs it has to incur from paying the remaining wages, so it make financial sense for them to retain
rather than retrench their workers
● Such added cashflow also raises the ability of a firm to pay off its creditors, thus reducing the likelihood of
bankruptcy, which is the worst outcome as all its workers will be unemployed should it close down
● However, for wage subsidies to be effective, the quantum has to be substantial, which means that the cost of
financing such a policy will be enormous, as evident during the 2009 Global Financial Crisis, where the
Singapore government had to into its fiscal reserves to finance the scheme
How can structural unemployment be reduced and what are the policy limitations?
● Since structural unemployment arises largely from the mismatch of skills, an obvious policy choice would be to
facilitate the retraining of the affected workers
● One of such policies options could involve government efforts to directly coordinate and provide relevant training
courses through government related organizations and institutions
● However, such a policy may not be very effective in very large countries as the unemployed could be spread
out throughout the country, making it hard for the government to move these people to the main cities where
the training is likely to be conducted
● Alternatively, policies such as import barriers which limit the imports of goods that compete directly with the
sectors that are losing competitiveness, or rules and regulations that deter foreign direct investments in such
industries, can be used to help prevent the decline of these sunset industries and stem the retrenchment of their
workers
● For such a policy to be effective, the domestic market must be large enough such that it can generate sufficient
demand to enable these sunset industries to survive, otherwise, massive retrenchments may still occur
Which policies are more effective in the Singapore context?
● Due to high compulsory CPF savings and a lack of natural resources, Singapore has a very high marginal
propensity to save and import respectively, which translates to a very high marginal propensity to withdraw, thus
resulting in a very small fiscal multiplier, which severely limits the effectiveness of expansionary fiscal policy
● In contrast, with large fiscal reserves accumulated from past budget surpluses, the Singapore government
definitely has the financial resources to use wages subsidises as a counter cyclical measure, and her quick
economic recovery from the Global Financial Crisis provides strong evidence of this policy’s effectiveness
● Hence, I would recommend wage subsidies over expansionary fiscal policy as a measure to fight demand
deficient unemployment in the Singapore economy
● As for the fight against structural unemployment, protectionism is likely to be a futile exercise as the Singapore
has only 5.5 million people, which is far too small a domestic market to prevent the decline of any sunset sector
● In contrast, as Singapore has a small land area, it is relatively easy for workers to travel to training centres as it
will take at most two hours on public transport for a person in Singapore to travel to anywhere on the island
● Also, with many world class training organisations like NTUC, the Employment and Employability Institute and
the various polytechnics and vocational institutes, Singapore ability to retrain its workforce is arguably second
to none
● Hence, I would unreservedly recommend retraining over protectionism as a policy measure for the Singapore
government to employ in its fight against structural unemployment
Mark Scheme
● At least two types of unemployment*
● At least two policies for each type of unemployment
● The limitations of these policies
● Which policy is more effective for which type of unemployment
*Note: if the approach is to cover only 1 type of unemployment, then response must cover at least three distinct
policies and their limitations for L3 marks to be awarded
S
Question 6
Between 2012 and 2013, the number of Singapore dollars required to buy US dollars and Chinese renminbi
increased by 3.5% and 6.6% respectively, while the number of Singapore dollars required to buy Japanese
Yen and Malaysian Ringgit fell by 15.2% and 3.5% respectively.
Source: Monetary Authority of Singapore
(a) Explain how an appreciation of a country’s currency might affect the current account of its balance of
payments. [10]
(b) Discuss the likely overall effects of the changes in the exchange rate in 2012-13 on Singapore’s domestic
economy. [15]
Part (a)
What is meant by balance of payments (BOP) and current account (CA)?
● BOP is a record of the international (cross-border) flows of a country’s currency

o Current Account (CA): measures such flows due to income, transfers and transactions in goods and services
▪ Balance of Trade (BOT): export revenue – import spending
▪ Property income e.g. interests, rental and profits (dividends)
▪ Transfers: remittances, gifts, government aid
▪ BOT is by far the largest component for most countries and is thus often used interchangeably with the
term current account
How might ↑ER directly affect X revenue, M spending and hence CA?
● Export revenue:
o ↑ER → ↑Px in foreign $ →↓Qx
o Px in local $ unchanged → ↓Px*Qx in local $ → BOT worsens
o Larger the magnitude of PED → larger the ↓ in Px*Qx in local $ → the larger the worsening of BOT
● Import spending:
o ↑ER → ↓Pm in local $ →↑Qm
▪ PEDm >1 → % ↑ in Qm > %↓in Pm → ↑Pm*Qm in local $ → BOT worsens
▪ PEDm < 1 → % ↑ in Qm < %↓in Pm → ↓Pm*Qm in local $ → BOT improves
How might ↑ER indirectly affect X revenue, M spending and hence CA?
● ↑ER → ↓P in local $ of imported inputs → ↓costs of production of firms using imported inputs → ↑price
competitiveness of local firms producing exports and import substitutes
● However, as firms will definitely use some domestic inputs, cheaper imported inputs can only partially offset some
of the fall in price competitiveness of arising from the ER appreciation
● Hence cheaper imported inputs only affect the magnitude but not the direction of the overall change in BOT and
CA
Mark Scheme

● Explain the meaning of BOP and CA (if not cap at 8m)
● Covers both direct and indirect impact on CA
● Explains at least three distinct points of analysis
S
(b) Discuss the likely overall effects of the changes in the exchange rate in 2012-13 on Singapore’s domestic
economy. [15]
Points to note:
● Given the ‘domestic economy,’ there seems to be a need to interpret the meaning of this term as opposed to
the unstated opposite, i.e. external economy
o One interpretation is that domestic economy refers to firms and industries catering to domestic demand (as
opposed to foreign demand)
o However, using this interpretation means that the analysis will be focused only on firms producing import
substitutes, which may be too narrow in scope
● Alternatively, given that the term ‘external economy’ does not appear in the question, it is quite possible that
use of the term ‘domestic’ by the question setter is purely incidental rather than intentional.
● It is also possible that ‘domestic economy’ means that the focus should be on the internal macro aims of growth,
inflation, unemployment since part (a) is already about BOP which can be considered an external goal
● Hence, the safer way to approach this question is to just focus on the effects of exchange changes on AD, AS
and hence inflation, unemployment and growth, while leaving out the analysis on the balance of payments
What is meant by effects on the domestic economy?
● In general, the 4 macroeconomic goals are

o Macro stability, which consists low inflation and low unemployment
o Strong, sustained, sustainable and inclusive growth
o Healthy balance of payments
● Aims related to inflation, unemployment and growth are often considered as internal / domestic while aims related
to BOP are considered as external
● The essay will thus focus on the domestic aims by analysing the impact of changes in ER on AD and AS and
how they affect inflation, unemployment and growth
How might the changes in ER affect the domestic economy?
● Impact on AD
o ↓ER → ↑X & ↓M → ↑(X-M) → ↑AD
▪ Far below full employment (Yf) i.e. horizontal portion of AS => ↑AD → ↑output and employment but no
Δ in GPL → ↓unemployment without inflation
▪ Approaching Yf, i.e. upward sloping portion of AS => ↑AD → ↑GPL but also ↑output and
↓unemployment => trade of between inflation & unemployment
▪ At Yf, i.e. vertical portion of AS => ↑AD→ ↑GPL without any change in real output and employment =>
pure DD pull inflation (overheating)
▪ Opposite will happen if ER were to ↑
● Impact on AS
o ↑ER → cheaper imported consumer goods and inputs → ↓ production costs → ↑SRAS (shift down) → ↓GPL,
↑output and ↑employment => ↓inflation, ↑growth and ↓unemployment (the opposite occurs when ER↓)
o ↑ER → ↓P of imported capital goods → ↑ investment and capital accumulation → ↑LRAS (shift right) → ↑LR
growth (the opposite outcome occurs when ER↓)
How might the mentioned changes in ER affect Singapore’s AD & AS?
● Deprecation of SGD against USD (3.5%)

o US is largest economy in the world => a major export market for Singapore => significant ↑ in X and AD
o While Singapore imports mainly agricultural products from US it also imports similar products from countries
like EU, Australia and New Zealand => minimal impact on price of imported inputs => minimal impact on AS
S
● Deprecation of SGD against Yuan (6.6.%)

o China is world’s 2nd largest economy => also a major export market for Singapore => significant ↑ in X and
AD
o China is the largest manufacturer in the world => Singapore imports large volume of consumer products
from China => significant fall in AS
● Appreciation of SGD against the Yen (15.2%)

o Japan is world’s 3rd largest economy => a major export market for Singapore => significant fall in X and AD
o Singapore imports large volumes of consumer goods (e.g. household electronics), intermediate goods (e.g.
electronic components) and also capital goods (e.g. industrial robots) from Japan => significant fall in costs
and rise in future capacity => significant rise in both SRAS (shift down) and LRAS (shift right)
● Appreciation of SGD against the Ringgit (3.5%)

o Malaysia is Singapore’s closest neighbour => significant cross border trade => major export market for
Singapore => significant fall in X and AD
o Singapore imports large volumes fresh vegetables and meat from Malaysia => large impact on food costs
=> significant fall in costs of food inputs and hence rise in AS (shift down)
What would be the likely overall effect on Singapore’s domestic economy?
● As all the above countries are major exports markets for Singapore, given that exports will rise significantly for
US and China but fall significantly for Japan and Malaysia, the overall effects on AD are likely to cancel each
other out
● Hence, the final impact of the ER movements is more likely to be determined by changes in the costs of imports,
which affects the supply side of the economy
● With negligible impact from US imports, and the impact of higher prices of Chinese consumer goods likely to be
offset by the lower cost of Malaysian food imports, what’s left is the cost of imported Japanese parts and
equipment
● Given the massive 15.2% appreciation of the SGD against the Yen, the costs of inputs and capital goods are
likely to fall substantially causing both SRAS and LRAS to rise substantially in the short and long run respectively
● Overall, this is likely to cause GPL to fall, and output & employment to rise, thus bringing about positive rather
than negative effects on Singapore’s domestic economy in terms of both macro stability as well as long run
growth.
Mark Scheme

● The meaning of domestic economy (if not cap at 8m)
● How ER movements can affect the domestic economy
● The possible impact on the Singapore economy of the changes in the SGD against various mentioned currencies
(cover at least 3 out of the 4 of these currencies)
● The overall effect on Singapore’s domestic economy

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S

Price elasticity of demand

Time period [T-factor]

Cross elasticity of demand

Positive Cross Elasticity (CED>0): substitutes

To score L3, you need to explain

Price ($) Figure 1: Brand A jeans Price ($)

Source: adapted from Singapore Public Sector Outcomes Review, 2014

(a) Explain why a government intervenes in the provision of healthcare. [10]

Figure 1: External benefit from healthcare consumption

MSB = MPB + MEB

MPB perceived (imperfect info)

To score L3, you need to explain

Why is opportunity cost of healthcare rising in Singapore?

To score L3, you need to explain

To score L3, you need to explain

● Differences in costs result in price differential

o Freight and storage costs

o Internal economies of scale (EOS)

Conclusion (Final judgment to answer the question directly)

To score L3, you need to explain

Note possible interpretations of domestic vs international impact

What is meant by domestic and international impact? (Introduction)

How can the Singapore economy be domestically affected by a budget surplus?

To score L3, you need to explain

What are the various macroeconomic objectives? (Introduction)

Why there may be a conflict between unemployment and inflation?

Figure 1: Trade-off between unemployment and inflation

General Price Level

0 Y0 Yf Real National Output

Which policies are more effective in the Singapore context?

What is meant by balance of payments (BOP) and current account (CA)?

● BOP is a record of the international (cross-border) flows of a country’s currency

To score L3, you need to explain

What is meant by effects on the domestic economy?

● In general, the 4 macroeconomic goals are

How might the changes in ER affect the domestic economy?

How might the mentioned changes in ER affect Singapore’s AD & AS?

● Deprecation of SGD against USD (3.5%)

● Deprecation of SGD against Yuan (6.6.%)

● Appreciation of SGD against the Yen (15.2%)

● Appreciation of SGD against the Ringgit (3.5%)

What would be the likely overall effect on Singapore’s domestic economy?

To score L3, you need to explain

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