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HWA CHONG INSTITUTIONYear Two H2 Economics 2013

Tutorials 1!"21# $acroeconomics III % &alance o' (a)ments* E+c,an-e .ates / International Economics

TUTO.IA 1!# &AANCE O (AY$ENTS ISEUII&.IU$ % CONSEUENCES* CAUSES / CU.ES

Section A# Com4lete &EE 5uestions in C,a4ter 1! lecture notes

Pls see answers at the end of lecture notes in tutors copy.

Also, pls go through any concepts or clarifications for this topic.

You may proceed to complete the tutorial if the pace of your class is fast.

Section ata Han6lin- (ractice

uestion 1# 77C 2012 (relims

Ta8le 2# Sin-a4ore# Selecte6 economic in6icators2008 2009 2010 2011

urrent Account !"#m$ %&,2&' (%,8%) &',)8) &1,)&9*inancial + apital Account!"#m$

21,8)0 %2,98' 1&,)2) '0,%)0

-alance of Payments !"#m$ 18,'%1 1),(') '&,(80 21,(8&eal /P growth !$ 1.& 1.0 1(.8 (.9nflation rate !$ ).) 0.) 2.8 '.2

"ource3 "ingstat

Note: JJC excluded Financial account in their question. In actual fact, Singapores Capital account cannotbe so large due to the a! "#S records our transactions ith the rest of the orld.

9a: escri4e "ingapores -alance of Payments account 4etween 2008 and 2011. 526Sin-a4ore;s &alance o' (a)ments account is in a sur4lus t,rou-,out t,e 4erio6 an6 it increase6 till2010 an6 'ell t,erea'terin- in t,e Unite6 States mi-,t ,a>e im4ro>e6 'rom 200! to 2011i6e6 in Ta8le 2 su--est im4ro>ement in material SO % 2mAnti"t,esis 1# ata 4ro>i6e6 in Ta8le 2 su--est ot,erwise % 2mAnti"t,esis 2# A66itional 6ata re5uire6 % 1mStan6 % 1m

Hwa C,on- Institution< All .i-,ts .eser>e6< Tutor;s Co4)1

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oe*er, this question is on hether the statistics in -able / is sufficient to deter%ine i%pro*e%ent ofS(0. #nd it is 1%, so focus is on sufficient *s insufficient.

Yes* e>i6ence 'rom Ta8le 2 is su''icient % 2m

; .eal G( -rowt,in "ingapore is generally positie throughout 2008 to 2011.:his suggests that peoples real income has increased and people hae a higher purchasing power.:hey can consume more goods and serices, indicating a 4etter material well4eing.

No* e>i6ence 'rom Ta8le 2 is insu''icient % 2m 94riorit) -i>en 'or 5ualitati>e as4ect:; :a4le 2 does not proide any 5ualitati>e statistics li?

uestion 2# $I 2012 (relims

Ta8le 1# Selecte6 Economic In6icators % $ala)sia / Sin-a4oreountry alaysia "ingapore

200& 2008 2009 200& 2008 2009/P at urrent ar: surplus generally decreased and the position has worsened whilst alaysias ->:

surplus first increased in 2008 followed 4y a decrease in 2009 which means the position improed

in 2008 and deteriorated in 2009.

Hwa C,on- Institution< All .i-,ts .eser>e6< Tutor;s Co4)2

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Note to tutors:

So%e students %a! loo at current account statistic instead, hich is incorrect. 8ou %a! ant to

sho the difference beteen '(- and current account.

For "ala!sias case, the 9 !ear period does not reall! ha*e a specific trend as the surplus rose and

fell rather distincti*el!.

uestion 3# A6a4te6 'rom N7C 2012 (relims

Ta8le 1# Be) economic in6icators in selecte6 economies200 200D 200! 2010

Unite6 States/rowth in /P at constant prices !$ 2.0 0 2.) 2.8nflation rate !$ 2.9 %.8 0.% 1.)Bnemployment !$ (.) '.8 9.% 9.)urrent Account -alance !B"# 4illions$ &18.1 ))8.9 %&8.( (&0.2

C,ina/rowth in /P at constant prices !$ 1(.2 9.) 9.2 10.%nflation rate !$ (.8 '.9 0.& %.%Bnemployment !$ ( (.2 (.% (.1urrent Account -alance !B"# 4illions$ %&1.8 (%).1 29&.1 %0).2

7a4an/rowth in /P at constant prices !$ 2.( 1.2 ).% %.9nflation rate !$ 0 1.( 1.( 0.&Bnemployment !$ %.8 (.0 '.1 '.1urrent Account -alance !B"# 4illions$ 211.0 1'&.1 1(1.8 19(.8

Source: International "onetar! Fund, orld ;cono%ic (utloo 5atabase, #pril /6$$

9a: escri4e B"As current account 4alance 4etween 200& and 2010. 526

B"As current account deficit decreased and the position has improed.

98: escri4e Dapans current account 4alance 4etween 200& and 2010. 526

Dapans current account surplus decreased from 200& to 2009 and rose thereafter which means itdeteriorated from 200& to 2009 and improed in 2010.

9c: ompare the current account 4alance 4etween B"A and hina from 200&8 to 20101. 526

ifference !focus on position of ->: as it is o4ious$3B"A has a current account deficit whilst hina has a current account surplus

ifferencehinas current account surplus generally decreased so the position has worsened while B"As

decreased deficit showed that the position has improed.

Note:Do notaccept the si%ilarit! belo as it is *ague and unclear, since the starting position is actuall!

different

Si%ilarit!: 'oth the current account positions ha*e been reduced.

Hwa C,on- Institution< All .i-,ts .eser>e6< Tutor;s Co4)%

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uestion # (7C 2012 (relims

9a: 9i: ompare the change in Dapans current account 4alance as percentage of /P 4etween200' and 2010 with that of B"A oer the same period.

Note to tutors:

Focus of question is reall! about ho the percentage has changed. So the

description should be increase or decrease in percentage.

#lso, an increase in percentage of 45) does not necessar! %ean an increase in

absolute a%ount, especiall! is there is a contraction of the econo%!.

Possi4le answers3

ifferences Dapans current account as a percentage of /P is always positie, suggesting a

surplus, whilst B"As current account as a percentage of /P is always negatie,

suggesting a deficit.

Dapans current account as a percentage of /P fluctuates gradually 4etween %',

whilst B"As has a general fall in percentage from ) to %

Not accepted S# has a

current account deficit as a percentage of 45)

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Section C# Essa) (ractice

NOTE TO STUENTS#

You are to come u4 wit, a 6etaile6 essa) 4lan 'or e>er) ESSAY 5uestion< .e'er to t,e SFills (acFa-e 'or Essa)s an6 8rin- it 'or tutorialse6< Tutor;s Co4)'

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ACTS CANIATES $UST BNOW#

Sin-a4ore;s o>erall 8alance o' 4a)ments ,as 8een in sur4lus since 1!D0sisi8les / in>isi8les:98: e'icit# income 'low an6 current trans'ers9c: e'icit# inancial account 94ort'olio an6 s,ort"term trans'er o' 'un6s:5source3 A" reports

arious issues6/ien the a4oe 4reaP is still in surplus. :his is 4ecausethe surplus in !a$ K deficits in !4$ I !c$.

Sim4le Sc,ematic (lan

INT.OUCTION

&OYT,esis# No nee6 to c,an-e e+istin- 4oliciesP$ is a systematic record of all economic transactions 4etween thecountry and the rest of the world. t is made up of 2 main accounts3 current account andfinancial account

Issue

Approach

Pro4lems sometimes arise oer the ->P and thus the "ingapore goernment needs tomonitor and if necessary introduce policies to manage ->P in order to ensure economicgrowth and sta4ility.

:his essay aims to discuss whether there is a need for "ingapore to change its policies formanaging its ->P, namely the current and financial accounts.

&OY

T,esis# No nee6 to c,an-e e+istin- 4oliciesen our relati>el) ,ealt,) state o' t,e &O(* t,ere is no ur-enc) to alter t,e set o' e+istin- 4oliciesuse6 to mana-e t,e &O(< T,is is 8ecause it ,as 8) an6 lar-e 8ene'ite6 our e+4orters

tut #19 - bop (answers)

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