-Economic growth, full employment, balance of payment equilibrium, price stability and equitable distribution of income.

-Economic growth refers to the growth of the actual or potential production capacity.

-An increase in real GDP without experiencing inflationary condition.

-Full employment would refer to the full utilization of resources for the production capacity which is measured in term of employment rate.

-Price stability is measured by the consumer price index which will indicate whether there is inflation or deflation.

-With price stability, the economy is able to maintain the cost of living and cost of production and thus avoid the detrimental impact of deflation and inflation.

-At BOP equilibrium, there is no excessive deficit and surplus of the balance of payment and trade which will affect the flow of the currency and thus affect the exchange rate.

-Income distribution is measured by the Gini coefficient and Wage to GDP ratio.

-The lower the Gini co-efficient and higher wage to GDP ratio, the less income disparity.

-Situation where there is economic growth without the increasing labour to increase production

-This can happen with the improvement of technology and factors of production.

-It is a policy that influences aggregate demand so as to meet certain macro-economic objectives.

-Through the implementation of the policies, the government can expand the availability of resources (supply of resources) and increase the utilization of resources (productivity of wage) thereby increasing the supply of the goods and services to raise actual and potential growth without incurring rising cost condition.

-It involves the implementation of policies to (1) increase the rate of utilization of resources so as to raise actual production capacity and (2) the expansion of the availability of resources to raise potential production capacity

-The policy involves the variation of money supply and interest rates by the central bank to affect the level of economic activity in an economy to achieve certain macro-economic objectives.

-When expansionary monetary policy is conducted, the government will increase the money supply through the buying of government bonds which will lower interest rate. This will lower the cost of credit consumption and reduces the reward for saving which will encourage more consumption and reduce willingness to save. Also, the level of investment will be raised as the level of profitability is raised since the cost of investment is lowered as lowering interest rates lowered the cost of borrowing. Consequently, there will be a rise in consumption and investment which will raise the aggregate demand, via the multiplier effect and thus raises the real GDP, production and employment.

-When contractionary monetary policy is conducted, the government will reduce the money supply through the selling of government bonds which will raise interest rate. This will raise the cost of credit consumption and raise the reward for saving which will discourage consumption and reduce willingness to save. Also, the level of investment is lowered as the level of profitability is reduced since the cost of investment is higher as rising interest rates raised the cost of borrowing. Consequently, there will be a fall in consumption and investment which will lower the aggregate demand, via the reverse multiplier effect and thus lower the real GDP, production and employment will lower price (curb inflation).

Benefits

-Can create a more market-oriented impact on the economy which is more permanent as it induces private investment

-Market-based economic activities will be more effective as the production may be more innovative and efficient (more diversified form of investment - dynamic for economic development - more sources of growth of NY and greater variety of employment opportunities

liquidity provided by the  government will induce stability for the economy (more money supply will enable higher level of consumption/more fund for business operation) – more cash flow

Limitations

-Inability of the central bank in controlling money supply due to liberalization of the banking sector

-Inelastic MEI – Investment is based on FDI and low local interest rate cannot affect FDI/Market pessimism may not induce borrowing

-Small multiplying effect-undermining the MP from expanding the economy(high MPS and MPT)

-Increase in local investment may not be able to compensate the loss in production due to fall in external demand

-Ineffective if the interest elasticity of capital/investment (MEC/MEI) is highly inelastic. E.g. due to positive business expectations (Investors are still willing to increase investment despite high cost of financing.)

-The policy involves the variation of government expenditure and taxes to affect the level of economic activity in an economy to achieve certain macro-economic objectives.

-It is used to solve recession or curb unemployment by raising aggregate demand

Increase in government expenditure - increase aggregate expenditure directly through infrastructural development and provision of public services

-Tax reduction - increase disposable income - raise consumption and increase return on investment, (lower tax on corporate earnings) contributing the rise in investment expenditure - rise in aggregate expenditure/national income (multiplier effect)

-This will close up the deflationary gap and thus curb recession.

-It is used to curb demand-pull inflation by lowering aggregate demand

-Decrease in government expenditure will decrease aggregate expenditure directly.

-Tax increment will reduce disposable income and thus lower consumption while the return on investment decrease due to higher tax on corporate earnings, contributing the fall in investment expenditure

-The effect will lead to the fall in aggregate expenditure which will decrease national income via the reverse multiplying effect. This will close up the inflationary gap and thus curb inflation.

-Low multiplier - reduces effectiveness of policy (High MPS/High MPM)

-Crowding out effect – If the government expenditure is financed through borrowing from the public through the issues of government bond – increase in demand of loan – increase in interest rateàincrease in cost of borrowing-discourage private investment as there is deprivation of fund for private investment and higher cost of borrowing due to high interest rate [contractionary effect that undermines the impact of expansionary FP]

-Fiscal drag - income increases (expansionary policy) - public in a higher tax bracket ® slower growth in disposable income - slower increase in C - reduces effectiveness of FP. This is the result of automatic stabilizers that are in place in the fiscal system

-Time lag

-High cost of financing

-Saturation of infrastructural development will lead to under-utilization of public facilities

-Low multiplier- reduces effectiveness of policy

-Time lag

-Expenditure on public works projects already happening cannot be cut. Reductions in expenditure may be minimal. (¯SOL/undermine efficiency of industries)

-raising tax is politically unfavourable

-Cannot be used to solve cost-push inflation (­tax to ¯AD will lead to tax-based inflation) and imported inflation

-The foreign exchange system attempts to adjust the foreign reserves of the country to influence the exchange rate which will affect the trading and investment activities that affect FDI, imports and exports to achieve macro-objectives.

-When exchange rate is managed with the adjustment of interest rate by influencing the local money supply, it is known as the monetary exchange rate policy.

-Increase in exchange rate - imports cheaper in domestic currency - reduce imported inflation.

-This can be done through the manipulation of the FOREX market through direct buying of the local currency, implying an increase in demand for the currency which will appreciate the foreign value of the local currency

-Fall in exchange rate - exports becomes relatively cheaper in foreign value and imports relatively more expensive - rise in (X-M) assuming Marshal-Lerner condition - rise in AE, increases employment and growth.

-This can be done through the manipulation of the FOREX market through direct selling of the local currency, implying an increase in supply for the currency which will depreciate the foreign value of the local currency

-Limit on how much exchange rate can be appreciated - amount of forex available/extensive fluctuation in price of global resources

-Price of imported resources may rise excessively - appreciation may be too extensive - need to raise more forex but the country may have limited forex reserve

-Resource owners may raise the price of resources as the value of US$ owned by the resource owners may be lowered, prompting them to raise the price of oil

-Exports would be more expensive in terms of foreign currency - fall in X, assuming Marshal-Lerner condition ® unemployment in export industries

-Government needs to set aside funds for intervention in forex market – Rise in opportunity cost – seen in terms of the usage of fund for other aspects of economic development.

-Appreciation – raise price of export - fall in export demand - loss of export competitiveness

-Solution: Produce high-value production - Ped of exports is price-inelastic - But reliance on technological advancement - structural UN+

-Import prices would be higher in terms of domestic currency- imported inflation

-Government needs to set aside funds for intervention in forex market

-Exchange Rate Depreciation will not raise Xd or FDI if the world economy is in a recession as the fall in Xd/FDI is due to lower foreign NY. Hence, price of export demand falls  - will not raise Xd (e.g. sub-prime market crisis in 2009)

-Source of funding - budget strain

-Problem of white elephant and rise of corruption

-The development of international air and sea routes with air and sea ports acquired by the national-linked PSA and CAAS along with the national airlines and shipping firms to help to provide trading facilities to help to promote trade and investment. This is vital to Singapore to place herself as a global city.

- Creation of a financial centre for the creation of funding for investment (Raise EG)

- Cost of funds for Investment falls (for low i/r)

-Requires financial knowledge and expertise

-Political stability

- Raise the productivity of the workers with skills development through a constructive and efficient training system – overcome skill incompatibility and displacement of workers

-Educational level of the workers must be at a certain level

-Cost of training and availability of facilities and trainers

-Difficulty in retaining training benefits

-Raise the technological level of the economy through training and research and development (raise competitiveness – Raise EG) - will raise the efficiency of production

-Decrease cost of production but may create structural unemployment as technological advancement will contribute to skill incompatibly and displacement of workers due to greater use of machinery

-Requires the facilities and pools of skilled labour

-Problems of funding

-Source of technological transfer – depends on the developed nations

-The need of a research environment

-The need of intellectual property right law

– FP-affect AD-Demand-side implication

–depending factors –time period

–impact on resource (change in AS) or production capacity (change in AD)

-FP-affect resource capacity-affect potential growth (SS-side implication) – outward shift of the LRAS. Infrastructural development and manpower development will enhance mobility of resource, which will expand availability of resources – shift LRAS to the right – lower cost of production to reduce price –-Raise in AD on a quantity basis, raise real GDP (achieving sustainable EG)

-A set of government economic policies which aims to change the underlying structure of the economy and improve both the resource capacity of markets and efficiency of the industries, and also that of individual firms and workers within markets so as to aim to achieve the aims of the economy.

-The policy will either raise the efficiency of production which will decrease cost of production, contributing to change in the aggregate supply or the expansion of resources which will lead to outward shift of LRAS.

-A tariff is a tax levied on imports mainly to protect home industries by making import less competitive than local products. Tariffs- increase price of imported goods

- increase in quantity purchased of domestic goods and fall in quantity of imports. (import substitution - raise local production to raise employment)

-Tariffs bring revenue to the government

-Tariffs increase prices. It will have little impact on quantity if the demand for import is inelastic

-Domestic customers have to pay a higher price. This means more inefficient local producers are able to sell their product

-Deadweight loss is created due to resource misallocation

-Retaliation measures may be undertaken by the exporting countries

-Fall in COP

-fall in price of exports lead to raise in export demand

-fall in price - Import Substitution – Replace foreign imports with cheaper local goods

-Subsidies can be given in the form of outright cash payments to a domestic producer, or they could also be indirect in the form of tax concessions, loans at below market interest rates, etc. These provide domestic firms a cost advantage, a subsidy allows them to market at lower prices than their foreign competitors

-It may lead to a drain in government resources as subsidies invoke government expenditure   that could have been spent on development projects. Taxpayers eventually pay for the subsidies.

-Quotas take the form of a physical limitation on the quantity of the commodity or value of the commodity which is allowed to enter the country in a given year. It is usually enforced by issuing licenses to some group of individuals or firms

-Quotas do not bring revenue to the government

-It is usually set on the basis of certain volume which may grow increasingly out of date with times. This might penalize a local form that wishes to expand its production

-It might invite retaliation measures by the exporting countries

-Control the amount of FOREX available for exchange

Total ban on particular good

-Deals struck, usually between 2 nations, or sometimes with a grouping of nations to increase bilateral trade through measures such as cutting tariffs on most goods.

-The main aim is to spur trade and investment between the 2 sides

Benefits

-Trade creation as removal of tariffs encourage greater volumes of trade between signatories (to lower cost of product through outsourcing by trade)

-Availability of larger markets - a larger market place and broaden business opportunities for firms. Also FTAs help suppliers to offer their services to customers in partner countries

-Removal of tariffs translate to savings and lower prices- Goods and services cheaper in partner country due to tariff savings- increased X, reductions in tariffs on some categories of goods, e.g. alcoholic drinks- cheaper goods for consumers/ greater variety of goods

-Job creation and growth opportunities due to increase in investment and trade- FTAs will encourage more FDIs between the signatory countries -job opportunities and increased productive capacity (long term economic growth) - diffusion of technology

-Fewer restrictions on services trade, foreign investment, flow of profits and flow of labour e.g. USSFTA - liberalization of banking services- Citigroup can tap into local network. Singaporeans find it easier to work in US and more US and Australian universities are recognized in Singapore

-Helps small nations like Singapore remain competitive and build better goodwill between countries

Costs

-Trade diversion - trade is diverted away from cheaper nation in favour of a less efficient tariff free member of FTA

-May incur higher cost of production- e.g. in Singapore- US FTA, textile and apparels must use yarn that are from Singapore or US which may not be the cheapest source to get duty-free treatment

-Poorer countries may be left out from enjoying benefits of FTAs signed between richer countries or may get the losing end of a FTA signed due to the inability to bargain with a powerful developed partner

-Greater income inequality within countries may benefit the larger firms rather than the SMEs

-Increased dependence on foreign countries may be risky particularly tor strategic goods and necessities

-May face problems with militant trade unions - strikes - education in production- increase in inflation

-wage structure will help to keep cost of wage down to prevent retrenchment to sustain employability – prevent retrenchment

-Price ceiling set below equilibrium

-May increase the supply of the resources through the government buffer stock

-Suppressing the symptoms of the problem without addressing the main cause -Shortage of supply-How to raise supply?

-May lead to severe shortages - rationing - administrative costs to government

-Shortages- illegal activities (smuggling, black markets, etc.)

-Most effective in curbing wage-price spiral (Advantage)

-This refers to a situation where cost of production increases, leading to cost-push inflation.

-The development of international air and sea routes with air and sea ports acquired by the national-linked PSA and CAAS along with the national airlines and shipping firms to help to provide trading facilities to help to promote trade and investment. This is vital to Singapore to place herself as a global city

-Singapore is an interest-rate taker in the international financial market

-lack of control of MS-liberalisation of banking sector

-MEI is interest-inelastic -small k

-Govt focuses on the control of exchange rate rather than interest rate – need to stabilize the exchange rate since external demand is 4.5 times of GDP

-Imported inflation is a significant source of inflation - use exchange rate management to control inflation

Ped export is price-inelastic – Appreciation – raise price of exports in foreign value – fall in export demand – total revenue of exports ­ will still increase (Why Ped of exports is price-inelastic – export demand is high-value added – low degree of substitution)

-Strong exchange rate – fall in import prices – fall in cost of production – fall in export price – fall in export demand – maintain export competitiveness – fall in import price – fall in cost of living - prevent wage increment - lower COP – fall in export prices

-Depreciation – rise in import prices in local value – rise in COL/ rise in COP – fall in cost of competitiveness and increase the need to raise wages

-Depreciation – fall in real wage of foreign workers in term of foreign value - will induce wage increment – raise COP

-Depreciation may not raise export demand / raise FDI if the fall in XD/FDI is due to fall in NY of foreign nations

-Need of a strong exchange rate to stabilize Singapore as a financial centre (must ensure foreigner savings, will be maintained in future value) – encourage Singapore to become a wealth-management centre

-It refers to an output good or factor of production that can be partially consumed or used up in production respectively.  For instance, a car.

-It refers to an economic condition that affects the effectiveness of currency revaluation, when the sum of elasticity of demand for imports and exports is greater than one.

-It refers to a system that allows for fluid changes in wage of workers, so as to ensure that they can cope with the cost of living and maintain current standard of living.

Income Policy (Reduce inflation)/Flexible Wage Structure

-keep Wage Cost competitive

- fixed portion

-variable portion is adjustable

-Wage cuts freeze – fall in COP - Maintain employment

-Wage increases to move in line with productivity