Chapter #12: Macroeconomic Issues (1) - Economic Growth

Transcription

1 Chapter #12: Macroeconomic Issues (1) - Economic Growth Scan here for a short video (it s also available on app) on an overview of the 4 macroeconomics goals and how they relate to each other. You will also explore decision making by the government in terms of policy making. Note: You will just need to understand the 4th goal, Balance of Payments. One of its components in the current account is X-M in goods as well as services. Conceptual outline ECONOMIC GROWTH DESIRABLE TYPES OF ECONOMIC GROWTH SUSTAINED GROWTH (NON-INFLATIONARY GROWTH) SUSTAINABLE GROWTH Economy is producing exactly at its Growth is compatible with better potential output without overheating environmental control and so that population is able to enjoy resources are not overused or the highest possible current material depleted, so as to enable the well-being or standard of living. economy to continue to generate growth for the benefit of future generations. INCLUSIVE GROWTH The benefits of growth are distributed equitably. Demand-management tools to stimulate spending (AD) Expansionary fiscal policy Expansionary monetary policy Exchange Rate policy Supply-side policies to boost productive capacity (AS) POLICIES / MEASURES 1 Regulations to protect the environment and policies to control externalities like pollution. Policies to encourage sustainable use of resources e.g. 3Rs and the search for green alternatives. Levelling up E.g. Social safety nets, wage subsidies, skills and training subsidies Levelling down E.g. Progressive taxation system 1 A broad understanding on how the various policies work will suffice for this chapter. More details will be covered in C2 in the next lecture series "Macroeconomic Policies". Hwa Chong Institution Economics Unit. All Rights Reserved. 12.1

2 Chapter Outline: 12.1 Introduction 12.2 Sustained Growth Meaning of Actual Growth Meaning of Potential Growth Meaning of Sustained Growth Consequences of Actual Growth Benefits of Actual Growth Costs of Actual Growth Causes of undesirable rates of Economic growth and Policies to achieve Sustained Growth Sustainable Growth Meaning of Sustainable Growth Policies to achieve Sustainable Growth 1 Stage 1.1 & Inclusive Growth Meaning of Inclusive Growth Polices to achieve Inclusive Growth Conclusion Appendices Stage 2.1 & 2.2 Formative Assessment Stage 1.1 Use the smart explorer app to complete the MCQs. Hwa Chong Institution Economics Unit. All Rights Reserved. 12.2

3 Stage 1.2 Refer to the smart explorer app for instructions Question 1: CJC Prelim 2009 In July of 2001, Beijing was awarded the 2008 Summer Olympic Games. Most people assume that such event will be enormous economic benefits to the host city not just during the event, but for years afterward. Explain the effects of the above on China s actual and potential growth. [10] Question 2: Adapted from H1 N2012 Q4b China's economy has enjoyed 30 years of double-digit growth, making it the world's largest. China's growth has reduced poverty. As they get richer, they will become bigger consumers. More companies will try to sell to this market, the largest in the world. Growth is making China a world economic leader. China is now the world's biggest producer of aluminum and steel. Exports rose 25 percent in However, such rapid growth can lead to negative consequences. Using the above extract and/or your own relevant knowledge, discuss the view that high rates of economic growth of an economy are often, but not always, desirable. [12] Time to Level up!! Stage 2.1 Use the smart explorer app to complete the MCQs. Stage 2.2 Refer to the smart explorer app for instructions Adapted from NYJC Promotional Exam 2017 Question 2 Extract 1: Fiscal Policy in Singapore Economic Growth The main focus of the Government's expenditure is on the delivery of essential public goods and services to Singaporeans. The Government spends to assure the nation of a secure future. Therefore, key areas of expenditure are on education, public housing, health care and national Hwa Chong Institution Economics Unit. All Rights Reserved. 12.3

4 security. The Government is also committed to building and maintaining world-class economic infrastructure and services. This is evidenced by the fact that development expenditure accounted for around one-third of government expenditure on average over the last three decades. Singapore's tax policies, although providing the main source of funding for the government, seek to enhance its economic competitiveness and attract foreign investments to Singapore. This combination of fair tax policies and prudent expenditure programmes are key reasons for Singapore s successful fiscal policy over the years, which complemented the exchange rate centred monetary policy in promoting sustained and non-inflationary economic growth. Singapore s fiscal policy is directed primarily at promoting long-term economic growth, rather than cyclical adjustment or distributing income. Source: Fig 1: Annual GDP Growth (%) China, India and Singapore China India Singapore Source: Extract 2: Singapore tumbles in WEF index that measures inclusive economic growth For six years running, Singapore was ranked the second-most competitive economy in the world by the World Economic Forum (WEF), right behind Switzerland. But the Republic took a tumble in the leader boards in a new report released today that measures how inclusive and equal countries' economic performance is. Switzerland fell to third place behind Norway and Luxembourg among 30 advanced economies. While the traditional rankings prized performance in categories Singapore gets top marks in - such as higher education and training, and goods market efficiency - the new index has indicators that measure how well economic performance translates into social inclusion, such as asset building and entrepreneurship, employment and labour compensation, and fiscal transfers. Table 1: How Singapore fared amongst the 30 advance economies of the world Inclusive Development Index (Areas)* Bottom Areas Rank 20% - Sub categories Education and Skills 7 - Access (to education by the general population) 25 - Quality 5 - Equity 5 Top 20% Hwa Chong Institution Economics Unit. All Rights Reserved. 12.4

5 Basic Services and Infrastructure 2 - Basic and digital infrastructure 2 - Health services and infrastructure 1 Corruption and rents 8 - Business and political ethics 3 - Concentration of rents (Rent vs Wage) 22 Financial intermediation of real economy investment. 2 - Financial system inclusion 18 - Intermediation of business investment 1 Asset building and entrepreneurship 5 - Small business ownership 4 - Home and financial asset ownership 7 Employment and labour compensation 7 - Productive employment 4 - Wage and non-wage compensation 10 Fiscal transfers 22 - Tax code (fair and equitable) 7 - Social protection (help for underprivileged) 29 *The Inclusive Development Index measures countries performances in seven areas and 15 sub-categories. Source: reports.weforum.org The new yardsticks come a day before world leaders converge in Davos for an annual meeting in the Swiss town, and are part of the WEF's call to governments to shift their economic policy priorities to respond more effectively to the insecurity and inequality that accompany technological change and globalisation. This means countries that prioritise widespread enjoyment of the fruits of economic growth rank higher than under the old gross domestic product-prioritising competitiveness model. A low ranking here is not necessarily trouble as what matters is that small and medium-sized enterprises can survive and wage earners can make a decent living, said NUS sociologist Tan Ern Ser. "There is a need to ensure social justice without harming the incentive for work and doing business," he said. The WEF report seeks to help countries and the wider international community practise inclusive growth and development by offering a new policy framework and corresponding set of policy and performance indicators for this purpose. Source: 16 January Extract 3: Premier Li: China is promoting inclusive growth in the Fourth Industrial Revolution In his opening address at the 11th Annual Meeting of the New Champions, Li Keqiang, Premier of the People's Republic of China, acknowledged the widespread impact of the Fourth Industrial Revolution across all economies, sectors and business models. He stressed the importance of pursuing strategies for inclusive growth to ensure that the negative effects of the Fourth Industrial Revolution are limited. Hwa Chong Institution Economics Unit. All Rights Reserved. 12.5

6 Li was positive about the Fourth Industrial Revolution: The new Industrial Revolution presents greater opportunities for inclusive growth than ever. He noted that small farmers are now able to connect to markets in big cities. China s concept of mass entrepreneurship has led to 14,000 newly registered daily. We have fostered an open platform for mass entrepreneurship, Li explained. This has not only created an unimaginable number of tailor-made new jobs, but it has also given people the opportunity to change their lives. Earlier, Chen Qiufa, Governor of Liaoning Province, People's Republic of China, spoke of how technology and addressing inequality could significantly drive new growth. Technological change will provide a long-lasting growth driver. By pursuing inclusive growth and scientific development, we will achieve greater progress together. Questions Source: 27 Jun 2017 (a) With reference to Figure 1, (i) Describe the trend of Singapore s GDP from 2010 to [2] (ii) Can you conclude that in 2010, the Singapore economy was larger than that of both India and China? Explain your answer. [2] (b) (i) With reference to Table 1, identify the Area in which Singapore has performed poorly. [1] (ii) What is meant by inclusive growth? [2] (iii) Explain how the poor performance in the area identified above indicates poor levels of inclusive growth in Singapore. [3] c) With reference to Extract 1 and using AD/AS analysis, explain how fiscal policy works to promote long term economic growth in Singapore. [8] d) With reference to the data and your own knowledge, discuss the view that countries today should focus on inclusive rather than sustained growth as their macroeconomic policy objective. [12] [Total: 30m] Hwa Chong Institution Economics Unit. All Rights Reserved. 12.6