EAns Macro evaluation 2

Eval effect of FDI on HK/SG VS US

• Depends on direction of FDI flows into economy 

• Eg. SG and HK experiences net inflow of FDI VS UK experience net FDI outflows -> effect of increase FDI inflow would be smaller -> benefit of EG smaller 

Eval effects of internal VS external factors on ER

• Higher Ability to Mitigate Internal Factors: Large pool of fiscal reserves -> government can use reserves for policies to solve internal factors and still within the government's control to mitigate

• Lower Ability to Mitigate External Factors: Originate from foreign countries and may be out of the country's control

• Eg. Countries who do not control their exchange rate and adopts a freely floating exchange rate system 

Eval In light of aging population, discuss whether SG should prioritise price stability over EG 

• Extent of problem 

• Aging causes AD and AS to fall -> -ve EG (biggest problem) 

• Because AD falls -> inflationary pressure is lower

Eval effect of EG on environmental pollution

• Depends on the Size of the Country

• Small size: cost of enforcing environmental protection laws lower -> extent of environmental degradation with EG and fall in mSOL is lower 

Eval Effect of price stability on improving BOT 

• Depends on nature of primary exports 

• For countries like Brazil that export commodities with many other substitutes globally or Vietnam who export G&S that are not very differentiated -> crucial to achieve price stability

• The high substitutability of their exports relative to competitors would cause BOT to improve to a large extent if price stability is achieved

Effect of trade partners depreciating currency on BOT deficit 

• Depends on overall trade competitiveness 

• X also dependent on quality of goods (non-price)

Eval Tariff VS ER policy (Narrow VS broad) 

• Implementation of the tariff could only help the specific industries that the tariffs are levied upon to gain competitiveness

• Weaker ER that affects the price of all exports and imports will allow all industries to gain competitiveness -> improve the country’s BOT to a larger extent as the effects are more broadly felt in the economy

• Furthermore, extent of cost-push inflation caused by ER policy might be limited for emerging economies 

• Eg. Brazil and the EU have a low reliance on imported FOP as they have rich factor endowments -> exports are likely to have smaller increase in UCOP

Depreciation VS EFP in improving EG 

Root cause: depreciation only tackles AD while EFP increase BOTH AS/AD via I