EAns General C

Key words PPC 

• Quantity / Quality of __ -> ability to produce G&S increase  

• Underemployment -> economy will not be operating at the highest possible level of output given its resources and technology -> point inside PPC 

SG healthcare subsidies 

• Public healthcare institutions in Singapore are run as “private” companies

• They receive an annual government subsidy for the provision of subsidised medical services to the patients

• Depending on one’s ward choice and monthly household income, Singaporeans will enjoy a tiered level of subsidies ranging from 50% to 80%

• Allow the government to provide more targeted assistance to help the lower- and middle-income Singaporeans with their medical bills

Why oligopoly 

• Natural and artificial BOE 

• EOS and network effects 

  • 2-sided network effects

  • An increasing number of consumers attracts more merchants and drivers, which attracts even more consumers in a self-reinforcing cycle

  • This massive expansion in user base allows platforms to operate at a large transaction volume

• Homogenous but differentiated: differentiate themselves through… 

• Mutually independent 

MC pricing = price ceiling 

• Maximum price or price ceiling is a legally permissible price set by the government on the highest price a seller is allowed to charge

Constraints of small domestic market -> rely on FDI and implements R&D subsidies to improve price competitiveness (X-M) -> susceptible to external shocks 

Give macro examples

• Iranian war led to a spike in global oil prices causing a global energy crisis after Iran blockaded the Strait of Hormuz

• SEA Economies (aka Asian Tigers) enjoyed rapid (double digit) economic growth in the early 1990s -> attracted many foreign (western) firms to invest and redirect production to the region

• US used to have CA in manufactured goods -> underinvestment into manufacturing infrastructure in the USA led to a loss of productivity -> greater input for same output -> UCOP increase -> loss in CA compared to China 

• USA have accused China of devaluing their currency in 2019 which caused the USD to appreciate relative to the Chinese Yuan -> large trade deficit of $854.4 Billion in 2019 as China is the largest trade partner for the USA

1. Oil price -> electricity bill increase -> UCOP increase 

2. Internal factors: loss of CA, external factors: depreciation of other country 

GLOBAL economic confidence -> foreign household income increase -> increase willingness to buy G&S -> DDx increase 

Over-capacity meaning

• LRAS increase faster than AD 

• Increase I -> LRAS increase -> assuming AD constant, China’s manufacturing capacity increased and exceed demand for goods -> resources are underutilised -> available of excess resources leads to fall in wages -> GPL galls -> deflation

1. FDI is NOT affected by interest rates! (IR only affects domestic investment) 

2. Increase LRAS -> reduce DD-inflation (AND vice versa!) 

AQI  

• AQI is based on measurement of particulate matter (PM2.5 and PM10)

• AQI is color-coded, with ranges like “Good” (0-50), “Moderate” (51-100), “Unhealthy” (151-200), and “Hazardous” (over 300)

• Suggests that EG that is achieved is at the expense of the environment -> negative long-term growth (Eg. Poor air quality -> fall in labour productivity)

Effect of strong EG on BOT 

• Assuming higher relative EG growth rates compared to other countries 

• Foreign EG -> increase DDx 

• Domestic EG -> increase DDm 

• Since domestic income rise relatively faster, increase M > increase X -> BOT worsen 

• Eval: Depends on size of MPM 

• SG has limited resources and lower ability to produce a wide variety of domestic consumer goods -> MPM larger as rely more on imported goods to satisfy material needs and wants -> larger BOT deficit 

Unsustainable growth

• link to -ve externalities 

• Since external costs not regarded by producers -> tendency for market to overproduce -> allocative inefficiency and market failure 

DD-inflation: firms only continue to produce extra output if can be sold at higher prices

Indlation effect of -ve outlook on economy

Inflation -> distorts price signals -> EROR falls -> assuming that inflation is prolonged and severe such that it will cause a significant fall in I -> AD falls by a large extent such that there is spare capacity in the economy (because inflation has no spare capacity!) 

Deflation effects

Deflation -> assume the economy is experiencing SS deflation (deflation has become expected) and is operating at spare capacity -> if the deflation is prolonged, consumers cut C AND Increase real IR (real IR = nominal IR - inflation)

1. Other country IR increase -> SG IR increase -> reduce DD-pull inflation AND cost-push inflation (cheaper imports) 

2. Natural rate of UN = S-UN and F-UN 

1. BOT deficit -> X falls = DD domestic falls AND M increases = SS domestic increases -> depreciation 

2. If BOT improve because of price stability -> movement along AD as price factor (NOT shift in AD) 

Compare X VS X+M

X / GDP: whether a country is export-oriented (SG: 175% 2020) VS X+M / GDP: indicates how trade dependent a country is (SG: slightly above 300%)

1. Conflict for SSP: fiscal sustainability 

2. Expansionary ER policy = depreciation 

Policies to address rising cost of living (daily necessities) 

• SSP (subsidise domestic production capabilities) 

• Increasing property tax 

Effect of excessive fiscal debt

• Increase likelihood of sovereign default (cannot fulfill loan obligations) -> -ve outlook on economy -> hot money outflow and fall in FDI -> capital flight (Eg. Sri Lanka) 

• NOTE: US has fiscal debt but has other factors preventing -ve outlook 

Austerity (decrease social spending) measures example

• Eg. Greece 

  • From 2010 to 2018, Greece had steep public wage cuts and tax hikes in exchange for €330 billion in bailout loans

  • Caused a 25% economic contraction, UN-rate above 27% and mass emigration

QE

• A type of monetary policy 

• Use as a EVAL 

• Buy future financial assets (Eg. Bonds) -> used due to liquidity trap

Reducing income inequality 

• WR increase -> (finish MAP!) Qd for labour falls and Qs increases until new equilibrium is reached with higher wage rate W

Dynamic CA R&D

• R&D -> increase productivity -> produce pharmaceuticals at lower opportunity cost than SG -> India new PPC3 has gentler slope than SG PPC1