undesirable growth, inflation, bot deficit

causes of -ve econ growth

1. ad factor: poor dom exp

2. as factor: -ve ss shocks

explain how poor dom exp → -ve econ growth

1. one cause of -ve econ growth is exp of poor econ performance in the future

2. LINK TO ECON AGENT: exp of lower future Y or high UN will cause hh to increase their savings and therefore reduce their C of g&s. at the same time, exp lower future dd, firms will project lower rates of return on future I and will be less willing to spend on i

3. LINK TO CHANGES IN COMP OF AD: together, there will be a decrease in consumption exp (c) and investment exp (i)

4. LINK TO CHANGES IN AD: since c and i are components of ad, a fall in c and i will result in ad falling, and ad will shift leftwards as seen in fig 1

5. graph & ga

exp how -ve ss shocks → -ve econ growth

1. ts

2. LINK TO UCOP AND SRAS: due to the disruptions to shipping routes, firms in econ are less w&a to import raw materials from its trade partners, resulting in a fall in qty of resources (consumer goods=link to msol, capital=link to ucop). as a result, there are shortages pf raw materials that would exert an upwards pressure on factor prices. at the same time, firms may also sub towards other sources of M resources that are relatively more ex, further increasing factor prices. these would directly lead to a rise in ucop that is indep of the level of ad. as such, profit max firms would be less w&a to produce, leading to a fall in sras

3. LINK TO AS: the decrease in sras is rep by an upwards shift of the AS curve as seen below

exp cause of unsust growth

*govt prioritising current actual econ growth

1. TS: unsust growth could be due to a lack of commitment to implement policies to protect the env due to potential trade-offs and conflicts w current econ growth

2. env protection policies: to protect the env, govts typically turn towards pollution abatement policies such as carbon taxes of pollution permits

3. how policy addresses pollution: when the govt imp a carbon tax on carbon emissions, this would incentivise the use of less carbon-intensive production methods. if the carbon tax is larger than the cost of pollution abatement, firms may also choose to reduce carbon emissions to avoid taxes. hence, a carbon tax is likely to reduce carbon emissions across the econ and reduce env degradation

4. conflict w econ growth-fall in sras: however, carbon taxes would also increase the ucop across the econ. for instance, energy companies may incur the higher cop and pass on higher energy costs to the whole econ. as a result, profit max firms would be less w&a to produce g&s, leading to a fall in sras. firms would also pass on higher cost to the econ in terms of higher prices, causing the gpl to rise. with higher prices in the econ, according to the real wealth, interest and trade effects, consumption exp, inv exp and net exports rev would fall, leading to a fall in production levels and a fall in rgdp. thus, resulting in -ve econ growth

5. conflict with econ growth-fall in ad: moreover, with higher cop in the econ, this may also deter foreign firms from relocating production facilities to the econ that implements such pollution abatement policies. firms that are currently producing in the econ may also look to relocate production facilities to other countries that do not have such pollution taxes in place. overall, these would lead to a net outflow of capital and a fall in inv exp and ad, that will subeq reinforce the decrease in rgdp via the reverse multiplier effect

6. link to unsust growth: hence, as a result of the potential conflict w econ growth, govts may be less w&a to implement carbon taxes to its full extent to protect the env and instead continue to pursue policies that only promotes actual econ growth today

effects of high inflation: macro, micro aims and sol

1. -ve econ growth/higher un rate/worsen fiscal sust/ lower sol via poor int exp

2. unfavourable bot position (ext)

3. lower sol

4. worsen equity (micro)

5. prod ineff (micro)

effects of high UN- macro, micro

1. -ve growth/worsen fiscal sust/ lower sol via exp (int)

2. relatively lower qly of g&s resulting in bot deficit (ext)

3. -ve econ growth/ higher inflation via hysteresis effect

both

1. worsen equity (structural unemp)

types of UN

1. dd deficient (econ sucks)

   • ad fall = rgdp falls = derived dd of fop falls = rise in dd deficient UN

2. structural (you suck)

   • skills mismatch, change in structure of econ

3. frictional (life sucks)

• low search process - takes time due to imp info

define inclusive growth

inclusive: is a rate of growth that is sustained over a period of time, is broad based across econ sectors, and creates productive employment opp for the majority of a country

(typically implies growth that takes income distribution into consideration)

define sustained econ growth

refers to a situation where an econ rgdp increases over an extend period of time w/o accelerating inflation rates

define -ve econ growth

refers to a fall in rgdp over time. if rgdp falls for two consecutive quarters, the econ is said to be in a technical recession

cause of -ve econ growth

a fall in country’s ad → a fall in rgdp and hence causing a -ve econ growth rate

define sust growth

is a rate of growth that is sustained without creating other sig socio-econ problems for future generations

causes of non-inclusive growth

when the econ growth in the country also results in a worsening of income inequality, which is usually indicated by a gini coeff that is increasing

exp how foreign labour outflow due to labour mkt policies → non-inclusive growth

and econ restruc via automation → non-inclusive growth

• ts

• labour mkt policy- increases foreign worker permits: to promote actual and potential growth, the govt may encourage more foreign labour inflows by issuing more foreign worker permits to increase the qty of labour

• how policy achieve growth: as this occurs, the prod cap of the country will increase, resulting in potential econ growth. at the same time, as more labour enters the dom econ, the consumption exp will also rise, causing ad and rgdp to rise, achieving actual econ growth

• higher ss of lsw: however, if the foreign labour inflow is conc in certain industries such as low-skilled manual labour, this would increase the ss of low-skilled labour while the dd for them remains constant

• GRAPH

• GA: the rise of ss of lsl is rep by the rightwards shift of ssl1 to ssl2 → this will result in a surplus for lsl, causing a downward pressure on wages to fall from wl1 to wl2. assuming the wages for hsl remains constant at wh1, the income gap between these workers will increase from wh1-wh1 to wh1-wh2, worsening the level of income inequality in the country. therefore, foreign labour inflow due to changes in the govt’s labour mkt policy can cause non-inclusive growth in the country

econ restructuring

• ts

• econ restruc: as the level of tech advances in the country, businesses will undergo digital transformation and restructuring by adopting more capital-intensive methods of production

• higher dd for hsw: this may lead to a rise in dd for hsl who are equipped with the knowledge and skills to work with computers and high end machinery

• low dd for lsw: at the same time, there will be a fall in dd for lsl who have been replaced

• graph & ga (same)

causes of non-inclusive growth

1. foreign labour outflow due to labour mkt policies

2. econ restructuring via automation

factor causes of bot deficit

1. relatively higher dom econ growth rates

2. relatively higher dom inflation rates

3. relatively qly of dom g&s

4. loss of comparative advantage

5. exchange rates (appre)

define dd pull and cost push inflation

dd pull inflation: refers to a situation where the ad rises near/at the level of full employment, resulting in a sustained rise in the country’s gpl

cost push inflation: refers to a sustained rise in the country’s gdp caused by a decrease in the sras of the country

causes of dd pull and cost push inflation

dd pull inflation: this is caused by an event that increases ad when the econ is operating near the level of full employment

cost push: this can be due to events that increases the country’s ucop, indep of the level of ad

factor causes of dd pull and cost push

dd pull

1. strong exp

cost push

1. -ve ss shocks and imported inflation

2. wage push inflation

effects of unfavourable bot position (+ large bot surplus)

1. -ve econ growth

2. depre of dc

3. -ve growth and worsening intergenerational inequity

4. unfair trade policies implemented by trade partners (large bot surplus)

structure for effects of unfav bot position part (a) essays

1. ts (need econ agent)

2. exp how the unfav bot position can lead to -ve effects on one of the govt’s obj (see bugis)

3. draw graph + ga

4. link to -ve effect on econ agent

x2