H1 Econs 2010 Prelims

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Section A Answer all questions in this section. Question 1 Ukraines Steel Industry
Extract 1: Ukraines economy World steel prices are highly sensitive to global economic downturns. The earnings of major steel exporters such as Ukraine are therefore closely linked to trends in the world economy. As global car manufacturing and construction activitiesand hence steel priceshave sunk in the deepening world slowdown, Ukraines fortunes have been dragged down too. The steel industry accounts for about 12 percent of Ukraines national income, and for more than one-third of total exports of goods. Many other economic activities depend on the steel sector. A surge in steel prices from 2000 to 2008 underpinned Ukraines largely favourable export performance and impressive GDP growth: between 2001 and 2007, the Ukrainian economy grew by an average of 7.5 percent a year in real terms. Amid the global economic crisis, the commodity boom of recent years ended abruptly, and with global car sales slumping and a sharp contraction in construction activity, steel was particularly badly affected. The collapse of steel prices has hit Ukraine hard. Source: Finance And Development, Vol 46 No.1, 2009
Figure 1: World steel prices
Figure 2: Ukraine Real GDP

% change YOY
Source: Inside Council; Summit Business Media
Source: World Steel, WSD, Macquarie Research
2 Extract 2: The primary steel production methods, accounting for about three-quarters of total steel, reduce iron ores to hot metal in the first step and then refining it to steel. This production of steel from ore is the most energy intensive and emits CO2 the most. The main production routes for primary steel are blast furnace (about 66% of total), direct reduction (6% of total), and open hearth furnace (3% of total). Steel is also produced by recycling scrap steel, often in combination with a form of iron. While it is true that every steel company and every steel-producing country is at a different point of maturity and development, the steel products manufactured and traded around the world are highly interchangeable. Today, 40% of the worlds steel is traded internationally and over 50% of total production is in developing countries. Source: American Iron and Steel Institute, 2008 Extract 3: Japan, seeking to meet a 2012 cap on greenhouse-gas emissions, agreed to purchase carbon dioxide credits from Ukraine in its first such overseas deal. The two countries signed a contract for the sale of credits under the United Nations-sponsored Kyoto Protocol today in Kiev. The sale comes under a so-called green investments plan, which will allow Ukraine to boost spending on environmental projects and energy-saving technologies. Japan, seeking to avoid a shortage of emission permits, plans to buy credits for as much as 100 million tons of carbon dioxide equivalent, and is holding talks with the Czech Republic, Hungary, Poland and Russia. Japan is in a tough situation, said a senior climate-change researcher at Mitsubishi Research Institute Inc. in Tokyo. Rather than buying more credits from other nations, the country needs actions to cut its domestic output. Japans emissions rose 8.7 percent in the year through 2008 from 1990 levels. Under the Kyoto accord, Japan pledged to cut greenhouse gases by 6 percent in the five years through 2012, according to the Environment Ministry. The country has so far bought 23 million tons worth of certified emission reduction credits, the Trade Ministry has said. Ukraine plans to spend the revenue from credit sales solely on emission-reduction projects, Igor Lupaltsov, head of the Environment Investment Agency, said in November. Source: Bloomberg, 18 March 2009 Figure 3
Changes in GHG* emissions 1990 2009 (%)

8.7
Source: US Dept of Energy, http://www1.eere.gov *GHG greenhouse gas
3 Questions
(a) (i)
Describe the trend of world steel prices between 2003 and 2008.
[2]
(ii) With reference to the data and with the aid of a diagram, account for this trend. [3] (b) (i) What is meant by price elasticity of demand? [2]
(ii) Explain what the data suggests about the price elasticity of demand for Ukraine's steel. [3] (c) Discuss the measures the Ukraine government can adopt to stabilise the country's domestic steel prices. [6]
(d)
Explain why steel production is inefficient from society's point of view.
[4]
(e)
Evaluate the effects of Japan's offer to buy emission permits from Ukraine on the global level of carbon emission. [10]
[Total: 30 marks]
4 Question 2 Economic Imbalances
In the global balance of payments, actions in any one place must be accompanied by equivalent reactions elsewhere. Chinas rising savings rate in the past decade, offered the great counterpart to the United States declining savings rate, just as its rising trade surplus corresponded to Americas equally unprecedented trade deficit. As the world works through the consequences of the global crisis, two seemingly unstoppable forces are working in opposite directions and it isnt obvious what the outcome will be.
Extract 4: The United States Economy US savings has finally risen for the first time in a while. For twenty years, growth in US savings has lagged growth in the US economy, and one consequence has been a widening trade deficit, which Americans have increasingly financed with debt. When the annual US current account deficit reached 3 percent of GDP in 1999, economists warned that the trend was worrisome. In 2006, the annual deficit reached 6.5 percent of GDP a record $857 billion thus compounding economists concerns. To fund its chronic deficit, the United States absorbed a majority of net capital outflows from other regions of the world. The total US net foreign debt has swollen to $2.7 trillion.
Extract 5: The Chinese Economy Chinas response to the global crisis has been an extraordinary expansion of credit new lending in the first six months of 2009 was equal to 25 per cent of Chinas GDP along with a surge in municipal, provincial and central government deficits. However, Chinas policymakers face a unique challenge in trying to boost private consumption spending. Although private consumption totalled $890 billion in 2007, making the country the worlds fifth-largest consumer market, behind the United States, Japan, the United Kingdom, and Germany (which China recently surpassed as the worlds third-largest economy), Chinas consumption-to-GDP ratio36 percentis only half that of the United States and about two-thirds those of Europe and Japan (Figure 6). The sources of Chinas low consumption rate are both behavioural and structural. The average Chinese family saves 25 percent of its discretionary income, about six times the savings rate for US households and three times the rate for Japans. Indeed, Chinas savings rate is 15 percentage points above the GDP-weighted average for Asia as a region. Frugalitys impact is compounded and in many ways producedby structural features that restrict consumptions share of the national income, which is only 56 percent of it compared with more than 60 percent in Europe and more than 70 percent in the United States.
Extract 6: The Result? As American debt levels have begun to fall, US households are reducing their consumption to repair their tattered balance sheets. The result has been a decline in the US trade deficit, a process that most experts believe will continue for several more years. Most of the fiscal and monetary expansion in China however is being channelled by the banking system into investment, with much of it ending up in increasing Chinas productive capacity faster than it increases consumption. The result is that the measure of how much Chinese production exceeds Chinese consumption, its trade surplus, has not contracted at nearly the rate at which the Americas excess of consumption over production, its trade deficit, has contracted.
5 Extracts 4, 5 & 6 are adapted from these sources: 1. A Consumer Paradigm for China, McKinsey Global Institute, Aug 2009 2. http://www.telegraph.co.uk 24 Aug 2009 Figure 4: US Private Consumption Expenditure
Figure 5: US Balance on Current Account
Figure 6: Private Domestic Consumption as % of GDP, 2008
Table 1: Chinas Current Account Balance
Year 2008 2007 2006 2005
US$ billion
$426.11 $371.80 $249.90 $160.80
Source: World Development Indicators, The World Bank Group
Table 2: Singapores Exports & Imports
Source: Annual Economic Survey of Singapore 2009
Questions:
a. Explain the meaning of the balance of payments of an economy. [2]
b.
(i)
With reference to the data, analyse the relationship between private consumption expenditure and the balance on current account in the United States from 1999 to 2009. [3] Why is the trend of widening trade deficit worrisome, according to economists? [3]
(ii)
c.
With the use of appropriate diagrams, explain how the current account balance for China from 2005 to 2008 might affect the following: (i) (ii) The economic growth of the country The exchange rate of the countrys currency. [4]
d.
Consider the impact of the reduction in consumption in the United States on the Singapore economy. [8]
e.
Discuss the desirability of the policy of expansion of credit to Chinas economy. [10] [Total: 30 marks]
Section B Answer one question from this section
3.
Compared with December 2008, the consumer price index remained stable in December 2009. Higher costs of transport & communication and health care were offset by lower cost of housing. Singstat.gov.com.sg a) b) Explain the reasons for the rising health care costs in Singapore. [10]
Assess the desirability of the government fully subsidizing healthcare expenditure in Singapore. [15]
4.
The Ministry of Trade and Industry (MTI) announced today that it expects the Singapore economy to expand by 13.0 to 15.0 per cent in 2010, an upward revision from the earlier forecast of 7.0 to 9.0 per cent. Straits Times 14 July 2010 a) b) Explain the indicators used in assessing the economic health of a country. [10] Discuss whether higher economic growth necessarily leads to a higher standard of living in Singapore. [15]
End of Paper
ANDERSON JUNIOR COLLEGE JC2 PRELIMINARY EXAMINATION 2010 Higher 1 ECONOMICS

Paper 1 Additional Materials: Answer paper
8819/01
16 September 2010 3 hours
READ THESE INSTRUCTIONS FIRST

Write your name, PDG and index number on all the work you hand in. Write in dark blue or black pen on both sides of the paper. You may use a soft pencil for any diagrams, graphs or rough working. Do not use staples, paper clips, highlighters, glue or correction fluid. Section A Answer all questions. Begin your answer to each question on a fresh sheet of writing paper. Section B Answer one question. Begin your answer to Section B on a fresh sheet of writing paper. At the end of the examination, fasten your answers to each question separately. Fasten this cover page in front of your answers to Question 1. Indicate in the table below the question number of the question in Section B you have attempted. The number of marks is given in brackets [ ] at the end of each question or part question. Section A Name _________________________( ) 1 2 PDG ______/09 Section B 3 / 4*
* Delete accordingly
Marks / 30 / 30 / 25 / 85
Total Marks
This document consists of 9 printed pages and 1 blank page. [Turn over
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BLANK PAGE
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Section A Answer all questions in this section. Question 1 Land transport in Singapore Figure 1: Daily Trips Generated (1997, 2004, 2008)
12,000
No. of daily trips ('000)
10,000 8,000 6,000 4,000 2,000 0
Total trips: 9,900 Total trips: 7,500 Total trips: 8,200
4,300 2,700 3,400
Private Transport Public Transport

5,600
4,800
4,800
1997
Note: Numbers are rounded off
2004
2008
Table 1: Singapore Population, GDP per Capita, Economic Activities and Daily Trips Made Year Population (mil) GDP per capita ($000 at 2000 prices)1 36.2 44.2 48.3 Resident unemployment rate2 3.5%3 4.4% 3.2% Daily trips per capita
1997 2004 2008
3.8 4.2 4.8
1.98 1.97 2.18
Note: Numbers are rounded off 1 From Singapore Department of Statistics website 2 From Ministry of Manpowers website 3 This is 1998s unemployment rate as the 1997 figure is not available.
Source: Land Transport Authority, Journeys, May 2010 Extract 1: Ensuring Singapore is not a city in a carpark A good public transport system in itself will not ensure that our roads are free-flowing. Without an effective traffic management system, our roads will still be congested. This is why, in addition to the various measures that we pursue, such as road building and a better public transport system, we also need Electronic Road Pricing (ERP) or congestion charging. Of all the different measures to [Turn over
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deal with congestion, ERP is the only one that deals directly with the problem by requiring individuals to take into account the costs of congestion caused by their driving to others. Furthermore, with the introduction of ERP in 1998, the Government has been able to rely more on car usage charges and less on car ownership taxes to manage traffic demand. Vehicle ownership taxes have been reduced and, as a result, annual vehicle ownership revenue fell from $3.4 billion in 1997 to $1.7 billion in 2006 compared to about $90 million in annual ERP revenue collected during that period. ERP has thus proven to be a more effective approach to managing traffic demand, and it costs motorists much less overall. Indeed, ERP is meant to be a congestion and not a revenue measure, so if motorists drive less and the roads are smooth-flowing, the Government will be happy to collect less. In effect, ERP rates can be adjusted down, as much as up, depending on the traffic speed on the roads. Adapted from Minister for Transport Mr Raymond Lims speech, 25 August 2007
Extract 2: Small cars COE down 30% The Certificate of Entitlement (COE) policy has sought to cap the annual increase in the car population to around 3 per cent. The supply of COEs is based on projections of how many vehicles will be scrapped in the current year. COE prices for small cars plummeted 30% yesterday to $9,501, hitting their lowest levels in over a year. The fall follows months of softening demand which dealers say has been driven by soaring inflation. They blamed rising prices for everything from rice to fuel, along with a growing number of Electronic Road Pricing (ERP) gantries, for keeping budget-conscious small car buyers out of showrooms. 'This group of buyers is the hardest hit by the softening economy so they may reconsider big purchases like a car,' said Mr Vincent Ng, the product manager for Kah Motor in Ubi. In the latest bidding results released yesterday, the COE for cars under 1,600cc dropped from $13,289 to $9,501. It was the lowest mark since August last year, when it dove to $8,118. Some analysts blamed high petrol prices, currently at $1.963 a litre for 92-octane fuel. That is roughly a 30% rise over this time last year. Motorists have also faced about a 10% rise in parking charges over the last year. The president of the Motor Traders Association of Singapore said new ERP gantries and a recent increase in charges may have also discouraged potential small car buyers. 'Perhaps some marginal buyers have decided not to buy a car,' said Ms Tan Kheng Hwee. In July, several gantries were opened near the Singapore River and the Government announced plans to build another six across the island by November. The move was part of a wide-ranging plan to relieve congestion and encourage more Singaporeans to use public transport. The rising costs seem to be encouraging people to hang onto their cars for longer. In the first six months of this year, about 22,400 small cars were taken off the roads, compared with over 25,800 during the same period last year. Next month, the Government is expected to reduce the COE supply to compensate for the fact that fewer cars are being taken off the roads. Industry watchers say that will likely result in higher prices. Adapted from The Straits Times, 4 September 2008
5
Extract 3: The new COE system It is easy to forget the core purpose of the Certificate of Entitlement (COE) system, with feelings boiling over following last week's unprecedented increases in premiums. The system, implemented in 1990, has one purpose and one purpose only: to control vehicle population growth so Singapore does not become a giant carpark. The system has been fine-tuned over the years, with the latest tweak announced two weeks ago. In the past 10 years, the supply of COE was based on forecasting the number of vehicles taken off the road in a particular year. With the change, the supply of COEs will be determined every six months, with each allotment determined largely by the number of vehicles actually taken off the road in the preceding six-month period. The Government also took the opportunity to correct an oversupply of certificates that persisted in the previous system, which was based on forecast deregistration numbers. The previous system resulted in an almost 25% increase in the vehicle population to more than 930,000 in the past five years. With the new supply formula, as well as the adjustment for oversupply, the new COE quota kicking in next month will be nearly 30% smaller. The impact is the worst for the category of cars up to 1,600cc. This mainstay of car buyers will see a 40% shrinkage. Adapted from The Straits Times, 30 March 2010
Questions (a) (i) With reference to Figure 1, describe the main features in the generation of trips between 1997 and 2008. Using Table 1, suggest possible reasons for the features observed.
[2] [4]
(ii)
(b)
With the help of a demand and supply diagram, account for the change in the price of the Certificate of Entitlement (COE) in Extract 2. (i) (ii)
[6]
(c)
What is meant by price elasticity of demand? To what extent is the car sellers revenue affected by the new COE quota?
[2] [6]
(d)
Evaluate the relative effectiveness of the COE system and Electronic Road Pricing in managing traffic congestion in Singapore.
[10]
[Total : 30]
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Question 2 In sickness and in health? A look at Germany and Greece
Extract 4: Global financial crisis The global financial crisis really started to show its effects in the middle of 2007 and into 2008. Around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems. Source: www.globalissues.org Table 2: Selected Economic Indicators for Germany 2006 Annual rate of growth in real GDP Household final consumption expenditure (% of GDP) Inflation rate (%) Unemployment rate (%) 3.3 2007 2.5 2008 1.2 2009 -5.0
58.4
56.6
56.4
52.9 (est.)
1.6
2.3
2.6
0.3
10.8
8.4
7.3
7.5
Source: Eurostat & OECD Table 3: Selected Economic Indicators for Greece 2006 4.5 2007 4.5 2008 2.0 2009 -2.4
Annual rate of growth in real GDP Household final consumption expenditure ( % of GDP) Inflation rate (%) Unemployment rate (%)
72.6
71.9
72.5
71.3 (est)
3.5
3.3
2.9
4.1
8.9
8.3
7.7
9.5
Source: Eurostat & OECD Table 4: Average Rates of US$ / Euro 2006 1.26 2007 1.37 2008 1.47 2009 1.39 Source: European Central Bank
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Table 5: Total Trade Statistics (year-on-year figures) for Selected European Union Countries* Growth in EU countries Germany Greece Exports (%) 15 1 Imports (%) 12 -6 Trade Balance (bn Euro) Jan-May 09 Jan-May 10 46.3 60.2 -11.7 -10.7
* include countries such as France, Belgium, Italy and Spain
Source: Eurostat & OECD Extract 5: Record German growth Germany, the European Unions (EU) largest economy by far, accounted for the strongest pace of growth in the EU economy in three years. Not only has unified Germany never recorded as rapid a rate of growth, its economy is bigger than previously thought, as earlier Gross Domestic Product (GDP) figures were revised upwards for the first quarter and for 2009. All sectors of the economy expanded, including consumer spending, which has been unusually weak. The loosening of purse strings by 90 million Germans has led to more purchases of goods and services from other countries. According to Minister for Finance Brian Lenihan, export market growth boded well for our emerging recovery. While foreign trade was one of the key drivers of growth, household and government consumption also contributed to the rise in GDP. An improving global economy has fed demand for German exports, while industrial orders and business confidence have been rising. Exports accounted for 41% of Germanys GDP in 2009, compared with 13% in Japan and 11% in the US. Foreign sales are forecast to grow 8% in 2011 after expanding 11% this year. The trade surplus is expected to widen, to 160bn from 159bn in 2010. According to Carsten Brzeski, an economist at ING in Brussels, the economy benefited from "a catching up in the construction sector after the harsh winter and strong foreign demand for German goods." He cautioned that "German growth will return to more ordinary growth numbers" looking forward. Despite an inevitable slowdown, all ingredients are there for the German economy to take the next step toward a self-sustained recovery. Adapted from The Irish Times, Aug 2010 & www.finfacts.ie
Extract 6: Zero growth if not recession in Europe The US economist Nouriel Roubini said that there was a risk of renewed recession in Europe. Growth will fall towards zero. Even if that is perhaps not a real recession, it will feel like one. Greece was just the tip of the iceberg. According to Roubini (known as Dr. Doom and best known for predicting the U.S. housing crisis), there was a risk of a second financial crisis, with countries becoming insolvent and being forced out of the European Union (EU), and banks collapsing. Countries such as Spain and Greece are now under pressure to cut spending and raise taxes to retain access to the capital markets, even though they had no growth to speak of. If governments implement austerity measures too soon they risk snuffing out demand and recovery, but delays could provoke a catastrophe with high interest burdens and inflation.
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It was "possible to square this circle" if governments committed to a credible medium-term plan to restore their budgets. But such policies, which carry the risk of a deflationary recession, must be compensated for with a loose pan-European monetary policy to stimulate demand. Any resulting further decline in the Euro would make European exports more competitive and allow Germany to raise wages and purchasing power at home to stimulate exports from other EU countries. Roubini said that a Japanese-style period of deflation, stagnation and high unemployment was a much greater risk to Europe for the next two or three years than inflation. Adapted from Reuters, 5 Jun 2010 Extract 7: Greek recession deepens When the 12 European nations raced to embrace the single currency, the Euro, it was supposed to be a forward step in the process of European Integration, towards the United States of Europe. In retrospect, the Euro has not contributed to deeper integration and is certainly close to undermining its foundations. France, Italy, Belgium and Spain are among the 11 largest export partners of Germany with each of these countries having a net deficit with it. It is the government or private deficit in these countries that is financing Germanys exports. Greece is in a deep economic crisis. In May 2010, Greece agreed to tough, three-year austerity and deficit-slashing programmes along with politically difficult structural reforms in exchange for a 110 billion bailout from the International Monetary Fund (IMF) and the European Union (EU). Economic activity in Greece has been slowing since the beginning of 2008. For 2009 as a whole, the Greek economy shrank 2%, worse than the government's forecast of a 1.5% contraction. However, the austerity and cutback policies have aggravated the recession. Recent indirect tax increase and cuts to public-sector wages and pensions, as well as a sharp reduction in public consumption are acting as a drag on growth prospects. Persistently high inflation is further eroding consumers spending appetite and power. "This is a deep recession and sharp economic contraction in Greece because of higher taxes, spending cuts, rising unemployment and contracting credit conditions, so consumptionthe main driver of GDPis stalling," said Diego Iscaro, senior international economist at IHS Global Insight. The contraction is expected to fuel a jump in unemployment especially after the summer months when the tourist season ends. Greece's unemployment jumped 12% in May from 8.5% at the same time last year, before crisis swept the country, official figures indicated. "Unemployment is a lagging indicator, so it is going to get worse in the third and fourth quarter because in the public firms' margins are shrinking, business confidence is very low and there is also joblessness sector," said Mr. Iscaro. The government is forced to cut the budget deficit by 5.5% points to 8.1% by year-end and this is naturally creating a serious economic contraction. Adapted from Wall Street Journal, 12 August 2010 and Wall Street Pit, Global Market Insight, 19 March 2010
Questions (a) (i) With reference to Tables 2 and 3, compare the trend in real GDP growth for Germany and Greece over the period 2006 to 2009. How far can we conclude that Germany has a higher material standard of living than Greece?
[2]
(ii)
[4]
(b)
(i)
Using AD-AS analysis, explain how austerity and cutback policies have aggravated the recession as stated in Extract 7. Explain what is meant by unemployment is a lagging indicator.
[4] [2]
(ii)
(c)
In light of the data provided, assess the relative success of Germany and Greece in recovering from a global financial crisis.
[8]
(d)
Discuss and compare the likely impact of the change in the exchange rate of the Euro on the German and Greek economies.
[10]
[Total: 30]
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Section B Answer one question from this section.
In a government-led initiative to connect the island in a high-speed broadband network, the Singapore ONE project was launched in June 1998. In 2006, Infocomm Development Authority of Singapore (IDA) introduced "Wireless@SG" where users can enjoy free, both indoor and outdoor seamless wireless broadband access at many public areas. (a) Distinguish between private goods, merit goods and public goods, and explain under which of these classifications broadband network should be placed.
[10]
(b) Assess the extent to which government provision of goods and services within Singapore is based solely on efficiency grounds. 4
[15]
Global oil prices have been steadily rising again and hit a new high of US $135 a barrel on 26 May 2008. (a) Explain the impact of higher oil prices on the Singapore economy. [10]
(b) Discuss whether the Singapore government should change its current policies to reduce the harmful effects of higher oil prices.
[15]
CATHOLIC JUNIOR COLLEGE JC2 PRELIMINARY EXAMINATION

In preparation for General Certificate of Education Advanced Level Higher 1
ECONOMICS
Paper 1
Additional Materials : Writing Papers READ THESE INSTRUCTIONS FIRST Write your name and class on all the work you hand in. Write the question number on all the work you hand in. Write in dark blue or black pen on both sides of the paper. You may use a soft pencil for any diagrams, graphs or rough working. Do not use highlighters, glue or correction fluid. Begin each question on a new sheet of paper. Section A Answer ALL questions. Section B Answer ONE question.
8819/01
3 September 2010 1400-1700
3 hours
At the end of the examination, fasten and hand in every question separately. The number of marks is given in brackets [ ] at the end of each question or part question.
This document consists of 8 printed pages.
Catholic Junior College
8819/01/Prelims/10
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Answer ALL questions. Question 1 Car population and pollution Extract 1: Road pricing makes good economic sense. But voters hate it Britains sclerotic roads learned that the recent global financial catastrophe had slightly improved their lives: traffic volume has fallen by about 3% since the start of the recession. But the Confederation of British Industry (CBI), warned drivers that it would not last: traffic has risen remorselessly and a return to growth seems inevitable as the economy recovers. Congestion does more than irritate drivers. It makes employees and deliveries late, it snarls up modern just-in-time supply chains and it clogs up labour markets by making commuting difficult. The cost of all this is almost impossible to measure. But a big review of transport put the cost between 7 billion and 8 billion a year. To fix the problem, the CBI offers a couple of ideas. First, it wants to see more flexible working, with employees staying at home or staggering their hours, spreading the traffic load over more hours in the day. Second, it wants to see more money spent on building new roads and widening existing ones. Third, it wants to encourage better use of existing roads. All these will help, but at best they merely chip at the edges of the problem. The CBIs big idea is to match supply with demand using a system of nationwide road tolling. To economists the case for road charging is simple. The problem is not a lack of capacity, but a failure to allocate it properly. A system of charges would be fairer than the current means of paying for roads from a mixture of fuel duties and general tax revenue. For the politicians, though, road charging is lethal. The publics first suspicion is that pricing would be just another tax, an interpretation that would seem plausible with todays eye-watering budget deficits. Source: The Economist, 15 March 2010
Source: Land Transport Authority, Singapore
8819/01/Prelims/10
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Extract 2: Panic over likely quota cut sends COE prices north Premium for commercial vehicles hits 10-year high. Making a dash before a foreseeable and sizeable cut in quota size next month, bidders sent certificate of entitlement (COE) premiums higher across the board again yesterday. Motor traders said the anticipation of a reduction in COE supply from next month was the main cause of yesterday's price spikes. The number of bids submitted rose by only 6.5 per cent to 4,753, a sign that sales in hand had not risen by much since two weeks ago. Motor traders said the premium increase in COE for cars up to 1,600cc remained modest because bidders in this segment typically have thinner margins. Rising demand from businesses on the back of an improving economy drove the commercial vehicle premium to its highest level in a decade. Source: The Straits Times, 11 March 2010 Extract 3: COE, ERP and the question in between It is not often that Singaporeans hear of differences in opinion within the highest ranks of Government, but there was a hint last week. Senior Minister Goh Chok Tong was at a dialogue with Marine Parade residents when he revealed an interesting divide over transport policy. He said Minister Mentor Lee Kuan Yew was in favour of making car ownership very expensive so that fewer people would own cars hence, leading to less congestion on the roads. Prime Minister Lee Hsien Loong, on the other hand, wanted more people to be able to own cars and to control congestion by applying more stringent usage measures like Electronic Road Pricing (ERP). The PM believes its fairer if you can spread car ownership. Philosophically, the PM is right. In a practical sense, the MM is right, he said. But then the problem is, the middle class cant own cars, only the rich can. So the PM is right philosophically, and I think its the fairer approach. But then, more road congestion, and so ERP. It has always been a tricky balance, getting the right mix of ownership and usage measures to work, to ensure not just free-flowing traffic but also meet the growing aspiration of people to have their own set of wheels. Which is the more effective method for Singapore? Which is the fairer? Is it possible to be both effective and fair? This is not just a matter of transport policy. It is also highly political nature, especially when questions of fairness are raised. Or to put it bluntly, as SM Goh did, should only the rich be able to own cars? You cannot get more political than that. Source: The Straits Times, 5 September 2008
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Extract 4: Centre mulls over pollution permits In what could be the first step towards a market-based system of pollution permits, the government plans to roll out a Rs.500-crore online pollution monitoring system across 6,000 industrial sites across the country. The Central Pollution Control Board (CPCB) has been asked to prepare a national action plan for online pollution monitoring based on the model being implemented in Tamil Nadu, according to Union Minister of State for Environment and Forests Jairam Ramesh. The Tamil Nadu Pollution Control Board launched its Care Air Centre last month to assess real time emissions from factories in the Manali industrial area. Censors have been put in place in the smokestacks, as well as to measure the ambient air around nine plants at Manali, to measure the levels of sulphur dioxide and nitrogen dioxide. The data is transmitted every ten seconds to the Care Air Centre. Mr. Ramesh said that while the system would cover 202 sites in Tamil Nadu by the end of the year, it will be expanded across the country to cover the entire organised industrial sector. It is still being debated who will pay the Rs. 500 crore cost of setting up the system. However, this system could then be used to power a system of pollution permits, the Minister said. An inspection-based system is simply not sustainable, said Mr. Ramesh. If we think we're going to create more and more laws, and put in more and more inspectors on the field and expect companies to comply, it's just not going to happen. In my view, a market-based system is the only solution in the long run. Michael Greenstone, an Economics professor at the Massachusetts Institute of Technology, suggested that giving companies permits for allowable amounts of pollution and allowing them to trade it would result in much larger reductions at much lower costs. Since some industries face much higher costs of reducing pollution, they can buy pollution permits in the market from other industries that have a lower cost, he said. Source: The Hindu, New Delhi, 24 July 2010
Questions (a) (i) Using Figure 1, compare the trend of COE prices for Category A and Category B between June 2009 and April 2010. Explain possible reasons for the trend as identified in (a)(i). With the help of a diagram, explain the impact of the imposition of COE on the price of cars. With reference to Extract 1, using economic analysis, comment on how traffic congestion affects the allocation of resources within Singapore. With reference to the data provided, assess the effectiveness of the different policies implemented to solve the problem of traffic congestion in Singapore. With reference to Extract 4, discuss whether Singapore should adopt Michael Greenstones suggestion to address pollution.
[2] [4]
(ii) (iii)
[4]
(b)
[6]
(c)
[6]
(d)
[8]
[Total 30m]
8819/01/Prelims/10
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Question 2 Chinas Trade Surpluses and its Exchange Rate Extract 5: Obama urged to confront China over yuan valuation A wide coalition of US trade unions and members of Congress is stepping up pressure on President Barack Obama to confront China over alleged illegal currency manipulation that could have cost millions of American jobs. The push comes ahead of a visit by the US treasury secretary, Tim Geithner, to Beijing next month to discuss trade issues. Against a background of rising job losses in the US, union leaders and members of Congress are backing a bill that threatens Beijing with punitive duties on its goods unless it changes its currency practices. The low value of China's currency, the yuan, has been a point of friction between the US and China for more than a decade. Some economists, including Geithner, accuse China of deliberately keeping the value of the yuan low to make its export goods cheaper, undercutting US manufacturing and leading to US job losses. The Chinese yuan was estimated to be undervalued by about 40%, which gave Chinese a huge export advantage, undercutting US products and jobs. Source: The Guardian, 20 May 2009 Extract 6: The export juggernaut: good for China, but good for its neighbours too When China joined the World Trade Organisation (WTO) in 2001, many developing neighbours felt more than a twinge of discomfort. With China already an export juggernaut, they feared that the dismantling of tariff and other barriers that went with WTO membership would make the country irresistible to manufacturers, diverting foreign direct investment (FDI) that might otherwise have gone to them. This appears not to have happened. Certainly, foreign investment in China has increased, as have China's already heady exports, which since 2003 have been growing at their fastest pace since the early 1990s. In 2004 China overtook Japan to become the world's third-largest exporter, behind America and Germany. But foreign investment has grown elsewhere too. The ten ASEAN countries saw a record $37 billion of investment in 2005. For some manufacturers, South-East Asia (or India) serves as a hedge against something going wrong in their China operations be it social unrest, economic problems or a business climate that turns against foreign investment. But much investment outside China is in fact contingent on the China boom. So supercharged has the Chinese export machine become that it has sucked in vast quantities of parts and components for final assembly from other parts of Asia Thailand, Malaysia, Singapore, the Philippines and Indonesia, as well as richer Taiwan and South Korea. The effect of WTO membership, in other words, has been to bind China more tightly into existing and highly sophisticated pan-Asian production networks, a task greatly facilitated by the internet. Everybody has benefited, even rich Japan, which in 2002-03 was pulled out of a decade and a half's slump by Chinese demand for top-notch components and capital goods. South-East Asia has got a further boost: rich in resources, including rubber, crude oil, palm oil and natural gas, it looks likely to profit from China's appetite for raw materials for a long time to come.
8819/01/Prelims/10
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6
For South Korea, Taiwan, Hong Kong and Singapore, trade has also turned from the rich world towards China. For Hong Kong, Taiwan and this year probably even Japan, China is the biggest trading partner. In China, the processing and assembly of imported parts and components now accounts for more than half of all exports. China's growing trade surplus, it argues, is explained entirely by this kind of assembly. China has recently recorded phenomenal growth in exports of high-tech products too, principally notebook and desktop computers, DVD players, mobile phones and the like. Between 1998 and 2004 American imports of Chinese laptops jumped from $5m to $7.7 billion and display units from $860,000 to $4.9 billion. Some now ask whether China is vaulting up the technology ladder or even threatening American national security. China's exports have to be put in context. Though very open to trade, China's economy, like America's, is essentially driven by its own huge domestic demand. This demand is now growing at a clip of 9% a year and starting to act as a regional engine of growth, sucking in imports. The World Bank forecasts that this will be the first year in which China's imports will be growing by more than America's, becoming the biggest source of import growth in the world. Goldman Sachs, an investment bank, reckons that China's imports for domestic use are now roughly the same as those used in assembling exports, whereas five years ago they were only half as big. Much of what is imported is in the form of raw materials oil, copper, gas, timber to feed the China boom. Source: The Economist, 29 Mar 2007 Figure 2: Chinas Exports, % of Total
Table 1: Singapore-China Bilateral Trade (S$ Thousands) 2008 47,594,565 43,817,922 91,412,487 2009 37,585,345 38,125,119 75,710,463 Source: IE Singapore
Imports from China Exports to China Total Trade
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Figure 3:
Chinese Yuan / US Dollar exchange rate and balance of trade in goods US trade balance with China ($bn per month)
China US $ exchange rate, Yuan per $1
The fixed exchange rate ended in July 2005
Source: Reuters EcoWin
Table 2: Exchange Rate of Singapore Dollar (SGD) vs Chinese Yuan (CNY) Year SGD/100CNY 2005 20.63 2006 19.64 2007 19.73 2008 21.09 2009 20.55
Source: Monetary Authority of Singapore
Questions (a) (i) (ii) Using Figure 3, describe the trend of US trade balance with China. Using a demand and supply diagram, explain how China manipulates its exchange rate. Assess the effects of a change in the value of Chinese yuan on US trade balance with China. Explain two possible effects of FDIs have on Chinas balance of payments. Using Table 2, identify the trend of exchange rate between Singapore dollar and Chinese yuan between 2005 and 2009. Assess whether Chinas growth is a threat or benefit to the Singapore economy. [2]
[4]
(iii)
[8] [4]
(b) (c)
[2] [10]
(d)
[Total 30m]
8819/01/Prelims/10
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8
Section B Answer ONE question from this section.
In 2009, a number of countries (e.g. Spain, Greece and USA) suffered from rising unemployment. (a) (b) Explain the costs and possible benefits of unemployment to a country. Discuss whether demand-side or supply-side policies are more effective in curbing unemployment. [10] [15]
Amid rising trade deficits and growing unemployment, the US is likely to act protectionistic. Source: The Straits Times, 31 Jan 2008 (a) (b) Explain the reasons that could have led to the rising trade deficits in a country. To what extent should the US act protectionistic to reduce her trade deficit? [10] [15]
[END OF PAPER]
8819/01/Prelims/10
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DUNMAN HIGH SCHOOL Preliminary Examination for General Certificate of Education Advanced Level Higher 1

ECONOMICS Higher 1 Section A Case Study Section B Essay Additional Materials: Writing Paper
8819/1
Write your name and class on all the work you hand in. Write in dark blue or black pen on both sides of the paper. You may use a soft pencil for any diagrams, graphs or rough working. Do not use staples, paper clips, highlighters, glue or correction fluid.
Section A Answer all questions. Section B Answer one question.
At the end of the examination, fasten all your work securely into two separate bundles for Section A and Section B. The number of marks is given in brackets [ ] at the end of each question or part question. Circle the question number you have attempted. Section A Q1 Q2 Q3 Section B Q4

2010
DUNMAN HIGH SCHOOL Humanities Department (Senior High)
[Turn Over
Year 6 H1 Economics (8819/1)
Section A Answer all questions in this section Question 1 The end of printed books?
Chart 1: Estimated net sales in millions US$ (2002 2009)

1250 1200 Mass Market Paperback 1150 1100 150 1050 1000 950 2002 2003 2004 2005 2006 2007 2008 2009 100 50 0 350 300 250 E-books 200
Mass Market Paperback (in millions US$)
E-books
Source: Association of American Publishers 2009 S1 Report
Extract 1: Book publishing in America Electronic book (e-book) prices are coming down. Amazon, a giant in selling conventional printed books, had its e-books outselling conventional printed books for the first time ever. Although e-books may one day transform the industry, another new technology that is less visible to readers is already making itself felt. Print on Demand (POD), developed only after digital printing began, allows for a few copies of books to be printed when an order has been received as compared to using traditional printing technology where it would only be cost efficient to print books in large quantities. POD is making millions of books available even if they appeal to only a narrow readership. Stephen DeForge of Ames On-Demand says his POD business, which specialises in printing small runs of customised books for schools and universities, has been growing by 45% a year since 2001. Last year his firm printed more than 800,000 books in runs as small as ten copies at a time.
2010
An economic slowdown may play to the new technologies' strengths. The costs of printing and shipping paper and cardboard are rising. Mr DeForge says POD is now cheaper than standard printing for runs of fewer than 1,200 copies, and the threshold is rising quickly. And if consumers become more price-sensitive, e-books may become more appealing. This week's Kindle bestseller, a political memoir by Scott McClellan, a former White House spokesman, can be downloaded from thin air in less than a minute for $9.99. A paper copy costs $15.37 on Amazon's website, and will not be in stock for three weeks. Publishing has only two indispensable participants: authors and readers. As with music, any technology that brings these two groups closer makes the whole industry more efficient but hurts those who benefit from the distance between them.
Adapted from: The Economist, 7 June 2008
Extract 2: Impact of paper-making on the environment In 2008, the Chinese pulp and paper industry accounted for 1.55% of the total industrial sectors gross output value. The manufacture of paper pulp demands large quantities of water. In the process, such water washes away chemical products thus becoming polluted. If the firm throws away that polluted water as it comes out of the process, over-ground and/or underground rivers will become polluted too. As a consequence: Drinking water will become dangerous for humans and cattle. Fishes will become contaminated too and thus useless as food. Water may become unsuitable for irrigation. Water may become unsuitable for further use in other industrial processes. Tourism and nautical and fishing activities may suffer. The pulp and paper industry is the fourth largest emitter of greenhouse gases among manufacturing industries, and contributes 9 percent of total manufacturing carbon dioxide emissions. As one of the biggest industrial consumers of energy, it follows that paper is also one of the biggest emitters of carbon dioxide and other gases that contribute to climate change. The biggest greenhouse gas releases come from energy production needed to power the pulp and paper mill.
Source: various
Table 1: CO2 emissions from paper production, 2000-2008 2000 Direct CO2 Emissions Absolute (Mega tonnes) Indirect CO2 Emissions Absolute (Mega tonnes) 41.94 14.93 2005 41.29 12.23 2006 41.15 14.81 2007 39.83 13.76 2008 37.26 12.81
Direct emissions refer to emissions from actual paper production; indirect emissions refer to electricity generation, transport emissions and methane produced from forest products in landfills. Source: Confederation of European Paper Industries (CEPI) fourth Sustainability Report
2010
Extract 3: The ecological case for ebooks The Cleantech report indicates that, on average, the carbon emitted in the lifecycle of an e-book reader, an electronic device used to read e-books, is fully offset after the first year of use. It states: "Any additional years of use result in net carbon savings, equivalent to an average of 168 kg of CO2 per year (the emissions produced in the manufacture and distribution of 22.5 conventional printed books)." The Cleantech Group forecasts that e-book readers purchased from 2009 to 2012 could prevent 5.3 billion kg of carbon dioxide in 2012, or 9.9 billion kg during the four-year time period. Currently the majority of the e-book reader devise sold around the world is produced by Foxconn, a firm based in China.
Adapted from: The Guardian, 10 March 2010
Extract 4: Costs of illegally dumping IT waste Up to 900 containers a week are arriving in Africa and Asia from Western Europe and the US, 80% of which are being dumped according to e-waste experts. Dumped technology can be extremely hazardous for the people living near it. Children are among the workers who try to extract valuable materials such as copper using unsafe methods. It is the toxic materials such as mercury and lead that could lead to poisoning. Dumped IT also presents a huge data issue with criminals mining the IT they receive for personal details that can be used in identity fraud or spam lists.
Adapted from: Computer Weekly, 23 Sep 2009
Questions (a) (i) Compare the mass market paperback and e-book sales between 2002 and 2009. [2] Explain a possible reason for the difference. [2]
(ii)
(iii) Assess the impact of the growing popularity of e-books on Amazons total revenue. [6] (b) Use demand and supply analysis to explain the likely impact of both the global economic slowdown and the development of printing technology on the market for printed books. [6] (i) Compare the trends of direct CO2 emissions with indirect CO2 emissions between 2000 and 2008. [2] With reference to the data, explain how market failure can arise in the paper production industry. [4]
(c)
(ii)
(d)
Discuss the view that for China, the benefits of increasing e-book sales worldwide outweighs the problems. [8]
4
2010
Question 2: Trade and Economic Growth
Extract 5: China, US Warn Against Trade Protectionism China and the United States agree on the benefits of trade and see protectionism as counterproductive Chen Deming, Chinese Commerce Minister, told reporters at the 4th round of the Sino-US Strategic Economic Dialogue (SED). Quoting a study by the US-China Business Council, an organisation comprising US firms doing business in China, the Minister said US-China trade has helped reduce inflation in the US and increased the household disposable income of Americans. The Chinese side understands US concerns about the quality and safety of imported Chinese goods, but warns against abusing and manipulating the issue as a pretext for trade protectionism. While China is willing to expand its investments in the US, he hopes that the US government would relax hi-tech export restrictions, settle trade disputes through negotiation and push forward multilateral trade talks jointly with China.
Source: Xinhua News, 19 June 2008
Chart 2: US trade with China, 2000-2008

400 350 300 US$ bil 250 200 150 100 50 0 Export 2000 16.2 2001 19.2 2002 22.1 2003 23.7 2004 34.4 2005 41.2 2006 53.7 2007 62.9 2008 69.7 Export to China Import from China
Import 100.0 102.2 125.2 152.4 196.6 243.4 287.7 321.4 337.7 Source: US Census Bureau, http://www.census.gov/
2010
Chart 3: China Inflation Rate
Source: Trading Economics, http:/ /www.tradingeconomics.com
Extract 6: The Chinese Economy in 2008 Inflation in the Chinese economy has become more evident since the middle of 2007. Consensus has been reached that inflation is a serious threat to stability and fighting inflation should be the top priority of government policy. However, there are still serious differences in diagnosing the nature of Chinas current inflation among Chinese economists. One school of thought holds that the inflation witnessed is caused by factors such as increase in labour costs and higher environmental standards. The other holds that the worsening of inflation is caused by excess money supply. Unfortunately, just as China launched its anti-inflation campaign, the subprime crisis broke out in the US and spread across the worlds major economies. Given that more than 24 million new working-age citizens will be added to its labour market each year, maintaining a relative high growth rate is a must. Therefore, the Chinese government must strike a fine balance between growth and inflation.
Source: Asia EconoMonitor, July 16, 2008
2010
Extract 7: Is Export-Led Growth Obsolete? For five decades, developing countries that managed to develop competitive export industries have been rewarded with astonishing growth rates: Taiwan and South Korea in the 1960s, Southeast Asian countries like Malaysia, Thailand, and Singapore in the 1970s, China in the 1980s, and India in the 1990s. However, there seems to be a transition to a new regime which works against exportled strategies. The most immediate threat is the slowdown in the advanced economies with Europe and America are both entering recession. On top of this are the global current-account imbalances. America alone ran a current-account deficit of $739 billion 5.3% of its GDP. According to a December 2007 NBC/Wall Street Journal poll, almost 60% of Americans think globalisation is bad because it has subjected American firms and employees to unfair competition. So exporting will become an even tougher business. Unlike large economies like China that can rely much more on domestic demand to fuel their economies, small economies like Singapore will have to struggle from now on, given the less hospitable conditions.
Source: DANI RODRIK, Project Syndicate, September 15, 2008
Questions (a) (i) Using Chart 3, summarise Chinas inflation rate over the period between Jan 2006 and Jan 2008. [2] With the help of an AD/AS diagram, explain the causes of inflation in China. [6]
(ii)
(iii) Explain the implication of the subprime crisis on Chinas anti-inflation campaign. [2] (b) Analyse how the increase of 24 million new working-age citizens into Chinas labour market each year will affect its economy. [4] (i) Describe what happened to the US balance of trade account with China over the period from 2000 2008. [2] To what extent can it be concluded that for US, the problems of trading with China have outweighed the benefits? [6]
(c)
(ii)
(d)
Discuss the impacts of the less hospitable conditions (Extract 7 paragraph 3) on the Singapore and Chinese economies. [8]
2010
Section B
Answer one question from this section
3.
(a)
Explain how the price mechanism allocates scarce resources among competing needs in a free market. [10] Discuss if the price mechanism is always the best way to allocate scarce resources in the economy. [15]
(b)
4.
For the first time, Singapore experienced employment growth amid an economic recession in 2009. The labour market was more resilient than in previous downturns, supported by the Resilience Package and concerted tripartite efforts to save jobs.
Ministry of Manpower, Labour market, 2009
(a)
Explain why governments should be concerned about economic recession and unemployment. [10] Discuss whether discretionary fiscal policy is the best way for the Singapore government to save jobs for an economy in recession. [15]
(b)
2010
1 HWA CHONG INSTITUTION

College 2 Preliminary Examinations 2010 General Certificate of Education Advanced Level
Higher 1 ECONOMICS 8819/01 13 September 2010 3 hours Additional Materials: Answer Paper READ THESE INSTRUCTIONS FIRST Write your name and CT on all the work you hand in. Write in dark blue or black pen on both sides of the paper. You may use a soft pencil for any diagrams, graphs or rough working. Do not use staples, paper clips, highlighters, glue or correction fluid.
Section A Answer all questions.
Section B Answer one out of two questions.
Start your answers to each question on a fresh piece of paper.
At the end of the examination, fasten the answer scripts to Questions 1, 2, and Section B separately with the cover pages provided. The number of marks is given in brackets [ ] at the end of each question or part question. For Section A, you are advised to spend several minutes per question reading through the data before you begin writing your answers.

HWA CHONG INSTITUTION
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HCI Preliminary Examinations 2010
8819/01/S/10
2 SECTION A Answer all questions in this section. Question 1 The global commodities market Extract 1: Oil prices in 2008 Analysts will be quick to point to the booming Asian economies and the fairly low surplus capacity for the recent price changes in oil. Moreover, it is widely known that the system has little ability to churn out a great deal more barrels of oil than it already is supplying. Hence, no one in the oil markets really believed it when the Organization of Petroleum Exporting Countries reversed its "stay the course" stance and said it would increase production this autumn. Rising international tensions over Iran's nuclear program is also not helping matters in the Middle East. Some observers have blamed the weak dollar, which has fallen to a record low against the euro, making oil futures cheaper for foreign investors. Others blame investors who bought oil futures with the intention to sell at an even higher price. Speculators and energy companies alike buy and sell these contracts on the futures market. Futures are contracts to buy or sell a specified commodity at a certain date in the future, at a current market determined price. The effects of these changes in oil prices have been far-reaching, affecting most oil importing countries, especially the developing ones in Southeast Asia and Africa.
Source: Adapted from US News & World Report, January 2008
Figure 1: The price of crude oil (US$ per barrel)
2005
2006
2007
2008
2009
2010
Source: www.oil-price.net
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3 Extract 2: Palm oil's carbon benefit queried Palm oil is a common vegetable oil, and is now regarded as a major source of biofuel. However the researchers question whether it really offers environmental benefits over conventional fossil fuels. Clearing land to start plantations involves burning huge tracts of forest, a process which produces large amounts of greenhouse gases such as carbon dioxide. In addition, palm oil plantations reduce plant and animal diversity, and do little to reduce carbon emissions. Researchers say tropical forests are increasingly cleared to make way for palm oil crops, leading to a reduction in habitats for many rare species. The problem is most acute in Malaysia and Indonesia which produce around 85% of the world's palm oil. Researchers also question the logic of destroying forests to produce biofuels for export to industrialised world markets. Subsidies to purchase tropical biofuels are given by countries in Europe and North America to reduce their greenhouse gas emissions from transport. This is not only an issue in South-East Asia. In Africa, forests are being cleared for sugar cane production which is even less efficient at biofuel production compared to palm oil.
Source: Adapted from BBC, December 2008
Extract 3: Mozambique going sweet for sugar Sugar, processed from sugar cane, is Africa's new oil. Mozambique exports about 40% of its total annual production of over 300,000 tonnes of sugar, mainly to the European and US markets. The country's four operational sugar mills currently employ some 35,000 workers, thanks to South African and Mauritian investments in the industry. Mozambique's government is planning to almost double its annual sugar production following soaring sugar prices and an abundance of available arable land. The recent European Unions Everything But Arms (EBA) initiative has allowed Mozambique a preferential and unlimited duty-free access to the lucrative EU market. However, it should be noted that although the world market is currently at an all-time high, there were times in the past when the market price was well below the cost of production. In recent months the Mozambique currency has appreciated against the dollar but weakened a little against the Euro.
Source: Adapted from BBC, October 2009
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4 Questions (a) (i) Describe the trend in the price of oil from 2005 to 2010.
[2] [6]
(ii) Using a demand and supply diagram, account for the sharp change in the price of oil in the first half of 2008.
(b) (i)
From Extract 2, identify the source of market failure that exists in the palm oil market in Malaysia and Indonesia.
[1]
(ii) Evaluate one possible measure which the Malaysian and Indonesian governments can adopt to correct this market failure.
[5]
(c)
From Extract 3, discuss the benefits of the European Unions Everything But Arms (EBA) initiative for Mozambique.
[8]
(d) In light of the data provided, assess whether pursuing the production of biofuels will conflict with the economic goals of a country.
[8]
[Total: 30 marks]
8819/01/S/10
5 Question 2 Stagflation concerns Extract 4: The spectre of stagflation looms over the US economy With economic growth sagging and oil prices surging to new heights, economists are worried that stagflation might be making a comeback. Gold prices are on the rise, along with the prices of basic commodities like wheat and steel. And there are signs that overall inflation, after years of only modest increases, may be breaking out of its box. For central bankers, especially the Federal Reserve chairman, Ben Bernanke, all this could not come at a worse time. With the credit markets in disarray from the collapse of the housing bubble, Bernanke is cutting rates in a headlong rush to blunt the risks of recession. Analysts say that by tolerating such price rises, and maybe even allowing them to escalate, the Federal Reserve is risking its hard-won credibility as an inflation fighter, which will ultimately require it to push interest rates higher than they would have had to in order contain the damage. On one hand, officials are cutting interest rates to keep the economy growing. On the other hand, the fear of rising inflation makes it more difficult for the Fed to jolt the U.S. economy with another wave of cheap money.
Source: Adapted from The New York Times, December 2008
Extract 5: Possibility of a double-dip recession haunts uneasy US A crippled housing market. Stubbornly high levels of unemployment. Falling consumer confidence. Slower growth in industrial production. Nobel prize winning economist Paul Krugman, warns that America has been here before: in 1937, when a pick-up in activity from the depths of the Great Depression was cut short by a premature tightening of policy. Cheap money, tax breaks, higher public spending and bank bailouts acted like a massive shot of adrenaline and appeared to do the trick. The US economy has traditionally had good self-healing properties, and after plunging into recession in late 2008 and early 2009 it returned to growth in the middle of last year. In the final quarter of 2009, it grew by 1.4%. But growth since the start of 2010 has dropped back, and leading indicators point to even weaker activity in the second half of the year, leading to a possible double-dip recession. Stubbornly high unemployment and the bombed-out state of the housing market help to explain why consumer confidence has nose-dived recently. Those who fear a double dip recession warn that companies, even if awash with cash, are not going to invest unless they can expect strong demand for their products. Americans can expect the Federal Reserve to leave interest rates at current emergency levels for some time to come. But cheap money alone is unlikely to turn the economy around soon.
Adapted from: The Guardian, July 2010
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Extract 6: Singapore not facing stagflation, but inflation will remain high The Singapore economy is not facing stagflation, despite rising prices with inflation hitting a 26-year high of 7.5 per cent in April and May. Worldwide growth is expected to remain soft in the second half of this year, following months of cooling due to high oil prices and weakening consumer confidence. And this slowing growth is compounded by steps to contain accelerating inflation a situation not unique to Singapore. However, the Senior Minister of State for Trade and Industry, S Iswaran, remains upbeat. He said, "In Singapore, the strong pipeline of foreign investments and tourism projects that we have secured will also provide a certain level of support to the economy for the rest of the year and beyond. These projects will give rise to new activities and help to create jobs."
Source: Adapted from International Monetary Fund Public Information Notice, August 2008 and Channel News Asia, July 2008
Extract 7: Share the spoils of globalisation Economic growth is good only to the extent that it transforms people's lives for the better. With an increase in share of world trade and inflows of foreign capital, talent and technology, Singapore has indeed greatly benefited from globalisation. However, this chief ingredient needed to achieve such growth openness and engagement with the global economy is now coming under attack because of its impact on income inequality. Most countries, including Singapore are experiencing a widening gap between the rich and the poor. This is especially on vulnerable workers who missed out on opportunities to acquire the skills and education needed to compete in today's fastchanging world. Governments need to consider how to find better ways to distribute the spoils of globalisation. Furthermore, the closer integration of the economies has also led to Singapore being more susceptible to stronger contagion effects something that the government needs to address.
Source: Adapted from The Straits Times, September 2008
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7 Figure 2: US unemployment rate (%)
Source: Bureau of Labour Statistics
Figure 3: US Consumer Price Index
Source: Bureau of Labour Statistics
Figure 4: Singapores GDP Growth
Source: MAS Survey of Professional Forecasters: March 2010
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8 Questions (a) (i) From Figures 2 & 3, compare the trends for unemployment and consumer prices from 2008 to 2010. Explain how the data suggest that the US is heading towards stagflation. [2]
(ii)
[2]
(b) (i)
Account for the US governments concern with unemployment and inflation. Evaluate the effectiveness of the policies implemented by the US to address the issues of low economic growth and high inflation.
[4]
(ii)
[6]
(c) Using AD/AS analysis, explain why the Senior Minister of State remains upbeat about the future economic situation in Singapore in spite of the high inflation rate.
[6]
(d) (i)
Using Figure 4, describe the trend of GDP growth in Singapore from 2007 (Q3) to 2009 (Q3). Discuss the view that the problems of increasing globalisation have outweighed the benefits for Singapore.
[2]
(ii)
[8]
[Total: 30 marks]
8819/01/S/10
9
SECTION B
Answer one question from this section. 3 "The Singapore Government vowed to improve drainage and step up alert systems after parts of the city-state were hit by flash floods, damaging homes and business." The Straits Times, 20 July 2010 (a) Explain what is meant by public good and consider whether the flash flood [10] alert system is an example of a public good.
(b) Discuss whether government intervention in the markets for goods and [15] services within Singapore should be restricted to the provision of public goods.
(a)
Explain the macroeconomic aims of the Singapore government.
[10]
(b) Discuss whether the policy of a gradual appreciation of the Singapore dollar [15] would be the best way of achieving these macroeconomic aims.
END OF PAPER
Copyright Acknowledgements: Extract 1 Extract 2 Extract 3 Figure 1 Extract 4 Extract 5 Extract 6 Extract 7 Figures 2 & 3 Figure 4 US News & World Report, January 2009 BBC, December 2008 BBC, October 2009 www.oil-price.net The New York Times, December 2008 The Guardian, July 2010 International Monetary Fund Public Information Notice, August 2008 and Channel News Asia, July 2008 The Straits Times, September 2009 Bureau of Labour Statistics MAS Survey of Professional Forecasters, March 2010
Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable effort has been made to the publisher to trace copyright holders, but if any items requiring clearance have unwittingly been included, the publisher will be pleased to make amends at the earliest possible opportunity.
8819/01/S/10
INNOVA JUNIOR COLLEGE JC 2 PRELIMINARY EXAMINATION 2

in preparation for General Certificate of Education Advanced Level
Higher 1 ECONOMICS
Paper 1
8819/01
Additional Materials:
Writing Paper and Cover Page
READ THESE INSTRUCTIONS FIRST Write your name and class on all the work you hand in. Write in dark blue or black pen on both sides of the paper. You may use a soft pencil for any diagrams, graphs or rough working. Do not use staples, paper clips, highlighters, glue or correction fluid/tape. Section A: Case Study Answer all questions. Section B: Essays Answer one out of two questions. At the end of the examination, fasten all your work securely together. The number of marks is given in brackets [ ] at the end of each question or part question. You are advised to spend several minutes reading through the data before you begin writing your answers. You are reminded of the need for good English and clear presentation in your answers.
This document consists of 9 printed pages and 1 blank page.

Innova Junior College
[Turn over
8819/01/IJC/Sep 2010
2 Question 1 Extract 1: Medical Tourism Emergence of medical tourism
Medical tourism has emerged as the fastest growing segment of the Asian tourism industry despite the global economic downturn. High cost of treatments in developed countries, particularly in the United States (US) and United Kingdom (UK), have been attracting patients from these regions to alternative cost-effective destinations. The main reason behind the low prices of medical treatments abroad is the low cost of labour in the popular medical tourism destinations. Two other factors are also now at work. One is that the quality at the best hospitals in Asia and Latin America is now at least as good as it is at many hospitals in developed countries. The second, more worrying, factor is that Americas already imperfect insurance safety net is fraying. Health care in the United States is provided by many separate legal entities. Health care facilities are largely owned and operated by the private sector. Health insurance is primarily provided by the private sector, with the exception of programs such as Medicare, Medicaid, the Children's Health Insurance Program and the Veterans Health Administration. Over 45 millions of Americans are uninsured, and many millions more are severely underinsured. Such people may find it cheaper to fly abroad and pay for an operation out of their own pockets than to find the money for deductibles or co-payments charged for the same procedure at home. The Asian medical tourism industry is currently growing at double-digit growth rate. Thailand, India and Singapore have dominated the regions medical tourism industry, with a combined market share of around 90% in 2009. While other countries have benefitted from this, the US health care providers stand to lose billions of dollars in revenue should this trend continue.
Adapted from Asian Medical Tourism Analysis and The Economist, 14 Aug 2008
Figure 1: Medical tourists from the US by country

Five of the countries visited most often for medical treatment Estimated annual number of medical tourists from the US (in 000s) Approximate cost relative to the US (in %)
Mexico
Thailand
Costa Rica
India
Singapore
Source: Reuters, 2009
8819/01/IJC/Sep 2010
3 Extract 2: Brain drain or net gain?
The prospect of an American-led boom in global medical travel raises questions on the effect on the developed and developing countries. Overall the effects of medical tourism are mixed. On the one hand, the industry can boost a developing country's gross domestic product and investment in health facilities. Upgrades in a country's hospitals also tend to decrease external brain drain, as top physicians find local jobs instead of leaving for employment in developed nations. Nonetheless, external brain drain is often replaced by internal brain drain, as doctors leave public health care centers to work in private hospitals where there is higher pay. In many cases, however, medical tourism threatens to exacerbate unequal access to quality health care in developing countries. Although relatively cheap by most Western standards, the private hospitals that treat foreigners are out of reach for the majority of people, and the revenue they bring in rarely makes its way to the public sector. The flight of Americas medical refugees is indeed a symptom of a troubled health system back home. Yet medical tourism need not be a distraction from necessary reforms, but could be a catalyst to them. The prospect of losing revenues to India or Thailand is already shocking hospital administrators and insurers into raising standards, increasing price transparency and lowering costs. By introducing global competition to an industry that's long been considered immune to outsourcing, medical tourism may up the ante on reforming coverage, cost, and quality at home.
Adapted from Asia Times, 7 Nov 2008
Extract 3:
Malaysias medical tourism eyes Singapore market
Industry players in Malaysias medical tourism are undertaking a variety of measures to welcome the expected surge of Singaporeans seeking medical treatment and therapies there. Singapore started implementing the island city-states elective hospitalization overseas option for members of its healthcare program bannered by Medisave in March 2010. The scheme gives Singaporeans more choices especially for those who want to seek cheaper but good quality treatment from private hospitals overseas. The old policy restricts the people who travel and work in Malaysia from using their Medisave and was thus a strain on their pockets. However, critiques argued that this populist measure may seem to placate short-term demands - only to come back to haunt us later when our own health-care and tourism industries are hollowed out in the medium to long term as more Singaporeans seek medical treatments in Malaysia.
Adapted from http://www.inquirer.net
8819/01/IJC/Sep 2010
4 Extract 4: Medical tourism in Singapore
Speaking in Parliament last week, Health Minister Khaw Boon Wan revealed statistics for the medical tourism sector of Singapore. Mr Khaw informed that the number of medical tourists is estimated by the Singapore Tourism Board (STB) using exit surveys at Changi Airport. For year 2007 (the last year for which figures are available), there were 348,000 medical tourists. This was 15% less than the previous year, 2006 (410,000). While tourist numbers dropped, the dollar value expenditure went up to $1.7 billion (+30%) over that period. Mr Khaw admitted that the 2012 target of 1 million medical tourists would be a challenge to meet in view of the global economic downturn. The Health Minister said that despite the expected difficulties, the medical hub strategy remains and Singapore will compete with other regional centres on skills and beneficial outcomes rather than merely on costs. As such, plans to expand capacity and specialist manpower will continue.
Source: http://www.hospitals.sg
Questions (a) (i) Explain the relationship between approximate medical cost and estimated annual number of medical tourist from US as observed in Figure 1. [2]
(ii) Using economic analysis, explain two factors that could have resulted in rising number of medical tourists in Asia. [4]
(b) (i)
Explain why consumption of healthcare is a form of market failure.
[3]
(ii) Consider whether elective hospitalization overseas option can help to ensure socially optimum level of consumption of healthcare by Singaporeans. [5]
(c)
With reference to case materials and your own relevant knowledge, discuss the view that Singapores medical tourism continues to remain competitive despite challenges. [8]
(d)
How far do you agree that the impact of American-led boom in global medical travel is only beneficial to developing economies? [8] [Total: 30 marks]
8819/01/IJC/Sep 2010
5 Question 2 Extract 5: The Asian Growth Story China's Global Impact
China's impressive growth performance and continued integration into the global economy over the past 25 years has been exceptional. In particular, China's strong growth over the past few years has had a considerable impact. In 2003, for example, Japan's exports to China rose by 68%. In addition, China has now overtaken the US as the main trading partner of South Korea and Taiwan. China has had a similar impact on world commodity markets. It is now the biggest consumer of many commodities in the world, including steel, copper, coal and cement, and is the world's second-largest oil consumer after the US. China's rise will lead to more jobs being lost in the manufacturing sector, and other low-skill sectors of developed economies. However, as these jobs are lost, new ones will be created as the money that China earns from its exports is spent on imports from rich economies. This will allow the developed world to specialise more in higher-value industries, leading to greater specialisation in the global economy. The other main channel where China will affect the global economy is through changing relative prices. China is already pushing down the price of most lowvalue, labour-intensive products, such as clothing and some basic electrical goods. Consumers in developed countries, who are net importers of these products, will be the chief beneficiaries. On the other hand, there is expected to be a rise in the price of skill-intensive goods that China needs to import; and of raw materials, such as oil, grain and other agricultural products. There will, however, be some countries that lose out as a result of China's growing global economic influence. These are most likely to include countries whose exports compete with those of China, but supply it with few intermediary products. These countries will also suffer from higher prices of raw materials. This analysis is supported by recent economic forecasts from the IMF, which show that by 2020 the only region that will lose out from China's rise will be South Asia, including countries such as Bangladesh, whose textile export industries will suffer in the face of cheaper and more efficient Chinese competition.
Adapted from Asia Monitor, Jan 2005
Extract 6:
Decoupling from US and European Economy?
During the global boom years of 2003-07, there was much talk of Asia (and emerging markets in general) 'decoupling' from the US and Europe, thanks to strong growth in China and to a lesser extent India. China was very much seen as an alternative anchor to the US, and statistics showing a rising proportion of individual Asian countries' exports to China seemed to corroborate this view. However, the decoupling argument had several flaws. Firstly, in an increasingly globalised world, it does not make sense for Asia (or emerging markets) to decouple from its main trading partners. So, Asia could not decouple from the US by coupling
8819/01/IJC/Sep 2010
6 to China, because China was itself coupled to the US. This leads to a second point, namely that a key factor behind increased intra-Asian trade was final demand from the US and EU. In other words, much of intra-Asian trade is intermediate goods that are assembled as final products in China, not necessarily for the Chinese market, but for re-export to the Western world. A third point is that although incomes are rising in China, Chinese private consumption (i.e. for final products, not components) has been shrinking as a percentage of GDP to less than 40%. With US consumption comprising 70% of a US$14 trillion GDP (US$9.8 trillion), and Chinese consumption at 40% of a US$4.0 trillion GDP (US$1.6 trillion), there is no contest which ultimately exerts greater global weight. In fact, it will probably be decades before Chinese consumers are able to match their American counterparts.
Adapted from Asia Monitor, Feb 2009
Extract 7:
Chinas share of world markets increased during the recession. Trade frictions with the rest of the world are hotting up. On 30 Dec, Americas International Trade Commission approved new tariffs on imports of Chinese steel pipes, which it ruled were being unfairly subsidised. On 22 Dec, European Union governments voted to extend anti-dumping duties on shoes imported from China for another 15 months.
Foreigners insist that the main reason for Chinas growing market share is that the government in Beijing has kept its currency weak. But there are several other reasons why Chinas exports held up better than those of its competitors during the global recession. Lower incomes encouraged consumers to trade down to cheaper goods, and the elimination of textile quotas in January 2009 allowed China to increase its slice of that market. Foreign hostility to Chinas export dominance is growing. Paul Krugman, the winner of the 2008 Nobel economics prize, wrote recently in the New York Times that by holding down its currency to support exports, China drains much-needed demand away from a depressed world economy. He argued that countries that are victims of Chinese mercantilism may be right to take protectionist action.
Adapted from The Economist, 7 Jan 2010
8819/01/IJC/Sep 2010
7 Extract 8: Asias Best Performer in 2010, Average in 2011
The Ministry of Trade and Industry (MTI) announced today that the Singapore economy expanded by 17.9 per cent in the first half of 2010. MTI will maintain the GDP growth forecast for 2010 at 13.0 to 15.0 per cent. In the second quarter of 2010, Singapore expanded by 18.8 per cent on a year-on-year basis, stronger than the 16.9 per cent growth in the first quarter. Manufacturing output expanded by 44.5 per cent on a year-on-year basis. Growth was led by the biomedical manufacturing and electronics clusters, which increased production of higher value active pharmaceutical ingredients and semiconductor chips. The construction sector grew by 11.5 per cent, supported by an increase in public sector construction activities.
Adapted from Singapore: Ministry of Trade & Industry, 10 Aug 2010 & Asia Monitor, Aug 2010
8819/01/IJC/Sep 2010
Questions (a) (i) Compare the change in the share of world exports among United States, Germany, Japan and China over the period 1986 to 2010. [2] Paul Krugman commented that China drains much-needed demand away from a depressed world economy by holding down its currency to support exports. How far do you concur with his view? [5]
(ii)
(b)
With reference to extract 8 and your own relevant knowledge, explain why Singapore is forecasted to be the top performing economy in Asia in 2010 but an average Asias growing economy in 2011. [5]
(c)
(i)
Assess who are the gainers and losers of Chinas impressive growth performance and continued integration into the global economy. [10] As a consultant economist, assess the options that you would recommend to the governments of the affected countries. [8]
(ii)
[Total: 30 marks]
8819/01/IJC/Sep 2010
9 Section B Answer one question from this section.
(a)
Explain the causes of unemployment in Singapore.
[10]
(b) Discuss the view that the Singapore government should use primarily supply side policies to achieve low unemployment in Singapore [15]
The ASEAN health ministers agreed it was vital to educate the public about good hygiene and encourage high risk groups to get seasonal flu vaccination. (a) Explain the need for government intervention in educating the public about good hygiene and encouraging vaccination. [10]
(b) Discuss the likely impact of contagious diseases on the Singapore economy in the era of globalization. [15]
The End
8819/01/IJC/Sep 2010
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8819/01/IJC/Sep 2010
Jurong
Jurong Junior College PRELIMINARY EXAMINATION 2010 ECONOMICS

Higher 1
8819/01
20 August 2010 3 hours
Additional Materials: Answer Paper
READ THESE INSTRUCTIONS FIRST Write your name and class on all the work you hand in. Write in dark blue or black pen on both sides of the paper. You may use a soft pencil for any diagrams, graphs or rough working. Do not use staples, paper clips, highlighters or glue.
At the end of the examination, fasten all your work securely together. The number of marks is given in brackets [ ] at the end of each question or part question.
This document consistsin thisprinted pages. Answer all questions of 9 section. Section A JJ Economics
Section A
[Turn over]
2
Section A Answer all questions in this section.
Question 1
The Automobile Industry
Extract 1: The Big Three The Big Three in Detroit, namely General Motors, Chrysler and Ford have been under growing pressure for years. Now, the companies again face a recessionary sales climate, and a consumer shift away from large sport utility vehicles and pickups. A weak economy and rising energy costs have led consumers to postpone their purchases. Even before the current slump deepened, rising competition was pushing all three carmakers to cut workers, close factories and streamline the number of products for sale. The problems include high labour costs and the continued production of gas guzzlers which American consumers find hard to maintain. Now executives in Detroit are coming to the conclusion that, in a world of rising demand for energy, high fuel prices are probably here to stay. Also the culture within these car companies didn't inspire long-term planning and alternative business plans which makes these large firms extremely slow in reacting to changes in market conditions and consumer demands. The existence of powerful unions did not improve the situation either. If not for an agreement reached in 2007 with the United Auto Workers union, labour costs would have stayed stubbornly high. Source: Christian Science Monitor, July 2008
Figure 1: US Autosales and GDP Growth

15%
10%
5%
0% 98 -5% 99 2000 2001 2002 2003 2004 2005 2006 2007
Autosales growth GDP growth
-10%
-15%
Source: US Bureau of Economic Analysis, 2007
JJC Prelims 2010 8819/1
Extract 2: Challenges from Japanese automakers General Motors slashed prices on most of its vehicles as the troubled automaker seeks to wean consumers away from their Japanese competitors and reverse its fate. GM said the price cuts affect vehicles that account for about 80 percent of its sales. GM quality may still be a tough sell with consumers who do not perceive GM as offering the same quality as Toyota, Honda and other Asian automakers. It all boils down to a matter of Toyota's better engineering system, using simple concepts like having their chief engineers take up full responsibility and accountability for products. Toyota also believes in investing in the most valuable asset, which are their people. During times of sluggish business orders, Toyota staff is often engaged in safety drills and other forms of training instead of being laid off only to rehire them when the demand picks up. These help to keep engineering cost low and ensure product quality. Source: Bloomberg Businessweek, October 2008 and CNNMONEY, January 2006 Extract 3: Saving American jobs President Obama settled on slightly lower tariffs on Chinese tyres; 35 percent in the first year, 30 percent in the second, and 25 percent in the third year which is recommended by the federal trade panel. Opponents of the tariff, said it would not save American jobs and that it is a matter of time before manufacturers have to move production to another country with less strict environmental and safety controls, less active unions and lower costs than the US. The union says more than 5,000 tyre workers have lost jobs since 2004, as Chinese tyres overwhelmed the US market. During that time, just one new plant opened. US imports of Chinese tyres more than tripled from 2004 to 2008 and China's market share in the US went from 4.7 percent of tyres purchased in 2004 to 16.7 percent in 2008. For the Chinese government, the tyre dispute threatens an economic relationship crucial to China's economic growth. There was speculation before the decision that new tariffs could produce public pressure on Beijing to retaliate, potentially sparking a dangerous trade war. Source: Foxnews, September 2009 Extract 4: Japan and US auto sector The automotive industry represents a significant portion of Japan's economy, representing 13 percent of its total manufacturing output and contributing greatly to employment and productivity. Japan is home to 11 automobile manufacturers consisting of Toyota Motor Corp., Honda, Nissan, Mazda Motor Corp., Isuzu Motors, Ltd., Suzuki Motor Corp., Fuji Heavy Industries, Ltd. and Daihatsu Motor Co. Japan is also the third leading producer of motor vehicles after the US and the EU. The US is the largest market for Japanese vehicle exports; however, automobile production has fluctuated downward over the last several years in Japan. The Japanese automotive industry relies heavily on exports with imports making up a much smaller percentage of auto trade. Domestic demand for vehicles has been falling due to high cost in parking spaces and congested roads in the cities. US do not rely significantly on foreign exports. The US auto trade relies mostly on its own domestic market, and to some degree on the Canadian market. Canada is the largest market for US vehicle exports with subsidiaries of US automakers accounting for most of the imports.
4
Source: Library of Congress, March 2009
Questions (a) Compare the trend of US auto sales growth with the trend of GDP growth between 1998 and 2007. [2] Using demand and supply analysis, account for the decline in US auto sales volume. [4]
(b)
(c)
Using the information available, assess the relevance of price elasticity of demand for General Motors to cope with the competition from Toyota. [8] Assess the impact of the auto trade sector of US and Japan on their balance of payment. [6]
(d)
(e)
Discuss whether US can solve its unemployment woes by the imposition of protectionist measures on Chinese products. [10]
[Total: 30 marks]
5
Question 2 Growth Outlook and Challenges for Singapore
Extract 5: Singapore raises growth forecast, sees downside risks for late 2010 In 2009, Singapore's gross domestic product contracted by 2% after the export-reliant city emerged in the third quarter from its worst recession in history. Singapore's total trade slumped 19.5% to 747 billion Singapore dollars from 928 billion Singapore dollars in 2008. In 2010, the Ministry of Trade and Industry raised Singapores growth forecast and said the economy was expected to rise by 4.5% to 6.5%, adding to evidence that Asia is leading the rebound of the world economy. However, the outlook for the second half of 2010 was uncertain, as private demand in the US, Europe and Japan was still weak, and downside risks remained including sovereign debt risks in Europe. These factors could weigh on the pace of growth in major economies especially as the effects of global fiscal stimulus measures wane. Separately, International Enterprise (IE) Singapore upgraded its forecast for Singapores total trade. Backed by a recovery in world trade, strong growth in Asia and higher oil prices, IE Singapore now expects Singapore's trade to grow by 9% to 11% in 2010, up from its previous prediction of a 7% to 9% rise. The growth of Asian economies will be a boon for Singapore's export growth. However, the main downside risks to the 2010 trade outlook include a sluggish global recovery, slow recovery in household spending, especially in the US, and high commodity prices, which may impede global growth. Source: Deutsche Presse-Agentur, 19 February 2010 Extract 6: Singapore, a "star APEC performer According to the Study Report of the 2007 Individual Action Plan Peer Review of Singapore, Singapore has made rapid progress towards the Bogor goals in all categories, which has placed Singapore at the forefront of APEC economies. The report said that Singapores trade regime reflects its embrace of globalisation. Singapores liberal investment regime, transparent and market friendly policies have enhanced Singapores attractiveness as an investment destination. Singapore is also one of the most open economies for the movement of business people. Its regulatory environment is rooted in clarity, fair competition and sound business practices. Even so, Singapores government constantly seeks to improve operating regulations to ensure that the business environment is market-driven, supportive of entrepreneurship and consistent with international best practices. Mr Ravi Menon, leader of the Singapore delegation for the APEC Peer Review, said that while Singapore was one of the freest, most open and most competitive economies in the world, it was not immune to challenges posed by globalisation, which included the rapid transmission of external shocks to the domestic economy, strong competition from lower-cost producers, vulnerability of low skilled workers and growing income inequality. Mr Menon explained that Singapores response to the challenges of globalisation was to maintain a sound and conducive macroeconomic environment, develop new niche areas, continued investment in R&D and education, strengthen competition and promote enterprise. Source: Ministry of Trade and Industry, 23 August 2008
6
Table 1: Selected Economic Indicators of Singapore 2006 Real GDP Growth (%) Inflation Rate (%) Unemployment Rate (%) Balance of Payments ($m) S$ Per US$ 8.6 1.0 2.7 26,995.7 1.58 2007 8.5 2.1 2.1 29,297.6 1.50 2008 1.8 6.6 2.2 18,531.1 1.41 2009 -1.3 0.6 3.0 16,456.2 1.45
Source: Singapore Department of Statistics, 2009 Table 2: Expenditure on Gross Domestic Product 2006 Consumption Expenditure ($m) Gross Fixed Capital Formation ($m) Government Expenditure ($m) Exports of Goods & Services ($m) Imports of Goods & Services ($m) 87,423.8 48,782.0 23,482.3 538,543.7 471,872.7 2007 98,139.7 60,356.0 24,303.6 578,854.7 498,093.3 2008 106,736.2 74,156.2 28,000.4 621,445.9 568,275.1 2009 106,673.7 74,385.1 29,320.5 522,029.0 469,410.7
Source: Economic Survey of Singapore, 2009 Figure 2: Global Oil and Food Prices
Source: Food and Agriculture Organization of The United Nations, 2010
Questions (a) Summarise Singapores economic performance from 2006 to 2009. [2]
(b)
With reference to the data provided, account for the high inflation rate in Singapore between 2007 and 2008. [5] To what extent does the inflation rate affect the balance of payments of Singapore between 2007 and 2009? [5]
(c)
(d)
Assess the relative importance of factors that could slow down economic growth in Singapore in the second half of 2010. [8] Discuss whether Singapore is willing to embrace globalisation despite the challenges posed by it. [10] [Total: 30 marks]
(e)
8
At the Copenhagen climate change meeting, UN estimated that one-third of the profits of the worlds 3000 largest companies would be lost if firms were forced to pay for the use, loss and damage of the environment. UN polluter pays principle states that whoever is responsible for environmental damage should bear the cost associated with it. Source: The Guardian, November 2009 (a) Explain why global warming is a cause of market failure. [10]
(b) To what extent would policies that internalise the costs of environment damage reduce global warming? [15]
4 (a) Explain the factors that influence the current account and capital account of the balance of payments. [10] (b) To what extent would a depreciation of a countrys currency help to reduce its balance of payments deficit? [15]
Class Candidate Name:
Adm No
2010 Promotional Examination 2 Pre-university 2

H1 ECONOMICS (8819)
Monday
13 September 2010
3 hours
READ THESE INSTRUCTIONS FIRST Write your name, class and admission number in the spaces at the top of this page and on all the work you hand in. Write in dark blue or black pen on both sides of the paper. You may use a soft pencil for any diagrams, graphs or rough working. Do not use staples, paper clips, highlighters, glue or correction fluid. Section A Answer all questions. Section B Answer one question At the end of the examination, fasten all your work securely together. The number of marks is given in brackets [ ] at the end of each question or part question. You are reminded of the need for clear presentation in your answers.
This question paper consists of 9 printed pages and 1 blank page. [Turn over
Section A Answer all questions in this section. Question 1 Road Traffic Conditions
Extract 1: ERP system: from gantries to satellites The Land Transport Authority (LTA) has called for proposals for a gantry-free system that is based on the use of satellites to track a vehicle on the road. This eye-in-the-sky method, if implemented, will allow LTA to extend its ERP coverage to congested roads anywhere on the island, without having to install more gantries, which cost about $1.5 million each. A satellite-based system also means the Government can charge for using a stretch of road based on actual congestion, instead of the flat fee levied when a motorist passes under an ERP gantry. Transport Minister Raymond Lim said that while the current gantry-based ERP system has worked well, it will not be sufficient. He also added that it may become impractical to continue installing ever more physical gantries to manage congestion. There are already about 70 such gantries islandwide. Furthermore, Transport engineering specialist Anthony pointed out that a satellite system would work well for distance-based charging, where vehicles are charged for how much of the road they use. 'It is also a more fair and equitable system for drivers,' he said. Source: Adapted from The Straits Times, 01 July 2010
Extract 2: China driving itself into gridlock Congestion has been the norm for major Chinese cities for years. Guangzhou estimates that traffic snarls waste 150 million hours a year and cause economic losses of 11.7 billion yuan (S$2.4 billion) a year. The bumper-to-bumper traffic is also not helping air pollution. Air quality readings recorded by the American Embassy are usually in the unhealthy range. The roar in the car population has much to do with the global financial boom. Also, it has been aggressively encouraging people to buy cars with the introduction of a slew of measures to make a set of wheels cheaper for the average Chinese. Tax reductions of 5 per cent on small-engine cars, subsidies for clean car technology and a concerted nationwide push for rural folk to buy vehicles at a cheaper price were introduced. China now needs a vehicle management policy to either curb ownership or usage - or better still, both. One option is to extend the "Shanghai way" - limit vehicle purchase - to the rest of the country. Since 1994, Shanghai has had a Singapore-style certificate of entitlement bidding scheme for new vehicles. Last month, 8,500 certificates were issued, averaging about 25,000 yuan each. Alternatively, China as a whole can adopt the "Beijing method", which restricts vehicle usage. Before and during the Olympics, the capital introduced a successful odd-even number system based on the licence plates, taking half the private vehicles off daily. After the Games, it was tweaked to the current last-number system, banning 20 per cent of the cars from hitting the roads a day. Lastly, China can go with the "Guangzhou option", which has said that it is following the Singapore model of cordoning off the downtown area and charging drivers a fee for entering the zone. Source: Adapted from The Straits Times, 07 Nov 2009
Extract 3: Using Public Transport in Singapore Using public transport is no longer a national matter, the global transport sector accounts for 23% of global carbon emissions (air, maritime, rail and road transport) out of which road transport accounts for 73%. Increasing fossil fuel based car usage leads to declining air quality with the increase in minute particulate matter. Problems of increased car usage include traffic congestion, injuries and respiratory troubles. Singapore has done well to balance the controlled development of private vehicle use and public transport and can serve as a role model for other Asian cities. The range of options make it really convenient to travel here - buses and trains and as a last resort, taxis for the more inaccessible and less connected places. Of course, trains and buses can be crowded during peak times, and some of the feeder buses from trains are not always available, but by and large, Singapore has made public transport convenient, clean and affordable. Source: Adapted from EcoWalkTheTalk.Com, 22 June 2010 Figure 1: Singapore Private Car Population and Daily Bus Ridership Annual Growth
8 6 4 2 0 -2 -4 -6 -8
Average Annual % Change
2004
2005
2006
2007
2008
2009
Year
Private Car Population Daily Bus Ridership
Source: Adapted from www.lta.gov.sg, 5 August 2010 Table 1: Singapore Annual Average Quota Premium of COE for Cars 1600cc & Taxis Annual Average Quota Premium of COE* $12 330 $14 101 $11 187 $16 551 $25 181
Year 2008 2007 2006 2005 2004
* COE (Certificate of Entitlement) is a quota system instituted by the Singapore government to limit car ownership. Source: Adapted from www.lta.gov.sg, 5 August 2010
[Turn over
Questions (a) (i) Compare the percentage change in the population of private cars and daily ridership of buses over the period between 2004 and 2009 in Singapore. [2] (ii) Explain how the annual average quota premium of COE affects the percentage change in private car ownership in Singapore. [2] (b) (c) Explain whether Singapore public buses and trains are public goods. [3]
Using demand and supply analysis, explain why traffic congestion is a norm for major Chinese cities (Extract 2). [5] Discuss the extent to which the call for a satellite-based ERP system by the Singapore government is to improve economic efficiency in the market for road usage. [8] Assess the effectiveness of the measures suggested in Extract 2 to tackle the problem of heavy traffic in China. [10] [Total: 30 marks]
(d)
(e)
Question 2
Global Economic Recession
Extract 4: MAS makes drastic move to fight inflation The Monetary Authority of Singapore (MAS) said yesterday it would allow an immediate jump in the value of the Singapore dollar by moving up the range in which it allowed the local currency to fluctuate. The currency move, which came amid a new surge in oil and commodity prices, surprised most economists, who expected the MAS to stick with the status quo, given the uncertain economic outlook. Indeed, the local currency rose 1.8 per cent to $1.3572 against the greenback yesterday. Experts now reckon that the Singdollar could reach $1.32 by year-end. OCBC Bank economist Selena Ling said the economy's surprisingly strong growth of 7.2 per cent in the first quarter probably gave the MAS 'comfort' to prioritise inflation over growth concerns. The MAS said in a statement that oil and food prices were likely to stay high for some time. 'Domestic cost pressures will persist due to short-term capacity constraints in certain segments of the economy,' it added. Inflation is expected to moderate in the latter half of the year, but experts believe policymakers should consider moves beyond currency strengthening. 'A stronger Singdollar cannot mitigate domestic sources of inflation like higher housing costs, wage costs and road usage costs,' said Standard Chartered Bank economist Alvin Liew. Source: The Straits Times, April 2008
Extract 5: IMF gives Singapore the thumbs-up As the recession took hold last November, Singapore moved to a neutral exchange rate policy, where the currency neither appreciates nor depreciates, and then shifted down the band within which it trades in April this year. With inflation not a concern, Singapore's monetary policy is appropriate, the international Monetary Fund (IMF) report said, and should remain so for some time. But it added that Singapore should return to a policy of allowing the currency to strengthen gradually once economic recovery is 'well established'. The Government's $20.5 billion fiscal resilience package was described as 'timely, appropriately large and diversified'. $4.9 billion of that would be funded by the past reserves, which have never been drawn on. A key plank of the Budget is a novel $4.5billion Jobs Credit Scheme through which the Government will pay a portion of employers wage bill. To help Singaporeans upgrade their skills so that they can stay employed or seek reemployment, the Government launched the Skills Programme for Upgrading and Resilience (SPUR) which provided higher course fee support for companies and individuals. But as risks remain on the horizon, the IMF said that the Government intended to undertake additional measures if the economic growth path proved to be weaker than expected. It also warned that removing the stimulus prematurely in the next Budget could undermine the confidence established by the stimulus package. The Government forecasts the economy to contract by between 4 and 6 per cent this year. Second-quarter GDP grew 20.7 per cent from the first, in strong signs that the economy is rebounding.
[Turn over
The IMF predicts global economic activity to pick up modestly next year and Singapore's GDP to grow by a conservative 2.5 per cent. Over the medium term, trend growth is likely to be weaker than before the crisis, due to tighter credit, and as trade and production patterns shift to new markets. Sources: MOF January 2009, The Straits Times, September 2009
Extract 6: UK Plans to increase borrowing to combat recession British Prime Minister Gordon Brown said Monday he planned to increase government spending by borrowing more to cushion the country's fall into recession. "The responsible course of action is borrowing for what is necessary now and for the longer term," Brown told business leaders and academics on Monday. Last week, official statistics showed Britain's economy contracted for the first time in 16 years in the third quarter between July and September, and the Bank of England is also expected to cut interest rates to help support growth. Brown and Bank of England Governor Mervyn King have predicted that next quarter's figures will also show economic contraction, warning that Britain is likely to be heading into a recession. But not everyone is convinced that increasing borrowing is the right course of action. In a letter to the Telegraph newspaper on Sunday, 16 leading economists argued that the plan could do more harm than good. "It is misguided for the government to believe that it knows how much specific sectors of the economy need to shrink and which will shrink 'too rapidly' in a recession," the economists said in the letter. "Thus the government cannot know how to use an expansion in expenditure that would not risk seriously misallocating resources." Source: The Associated Press, October 2008
Figure 2
Source: Bank of England
Table 2: Singapores Key Economic Indicators 2005 201.3 7.3 0.5 3.1 2.8 23.8 2006 221.1 8.4 1.0 2.7 1.6 26.4 -35.1 2007 251.6 7.8 2.1 2.1 -0.8 25.2 -33.9 2008 257.4 1.1 6.5 2.2 -7.8 15.2 -16.2 2009* 240.9 -8.8 0.1 3.6 -8.7 15.5 -35.8
GDP, at current market price (S$bn) GDP at 2000 market prices (% change) Inflation (% change) Unemployment rate (%) Productivity growth (% change) Current account balance (% of GDP)
Capital and Financial account balance -29.7 (S$bn)
* forecast as at 2Q 2009 Source: Various Table 3: UKs Key Economic Indicators 2005 1253 2.1 2.1 4.8 0.8 -2.6 2006 1322 2.8 2.8 5.4 2.4 -3.4 -571.9 -4.5 2007 1401 3.0 2.0 5.4 2.3 -2.9 -995.7 -4.1 2008 1443 0.7 3.9 5.6 0.5 -1.7 655.2 -5.5 2009* 1414 -4.1 0.8 7.4 -2.4 -2.0 na -14.4
GDP, at current market price (bn) GDP at 2000 market prices (% change) Inflation (% change) Unemployment rate (%) Productivity growth (% change) Current account balance (% of GDP)
Capital and Financial account balance -687.3 (bn) Government budget balance (% of GDP) -3.5
* forecast as at 2Q 2009 Source: Various
[Turn over
Questions
(a)
(i) Compare the change in Singapores General Price Level between 2005 and 2008 with that of the UK over the same period. [2] (ii) Identify the possible causes of inflation in Singapore [1]
(b)
With the help of a diagram, explain the effect of the change in exchange rate policy as described in Extract 4. [3] Discuss the usefulness of the data in measuring the standard of living in Singapore. [6] To what extent can productivity growth explain the deterioration in the balance of payments of Singapore? [8] Using both the case study and your relevant knowledge, compare and evaluate two policy options adopted by Singapore and the UK in response to the recession. [10] [Total: 30marks]
(c)
(d)
(e)
Singapores real estate prices jumped to a record high in the second quarter as the city states economic recovery broadened. Private residential property prices rose 5.2 per cent in the April-to-June period, the highest level since the government began the index in 1975, the Urban Redevelopment Authority said. The prices of governmentbuilt HDB flats have also gone up by 2-3 per cent. The China Post, 2 July 2010 (a) Using demand and supply analysis, explain the increase in residential property prices.
[10]
(b)
Discuss the measures that may be taken by the Singapore government in the light of the effects of the increase in property prices. [15]
As the unemployment situation worsens during the recession, the Ministry of Manpower (MOM) will continue to press on by increasing expenditure on various schemes to tackle the downturn. The Manpower Minister also emphasises the need to focus on long-term fundamental issues such as re-employment, skills upgrading, employment of older workers and women so that when the economy recovers, there is a source of workers to support our economic growth. Adapted from Channel NewsAsia, 5 April 2009 (a) (b) Explain the likely causes of unemployment in Singapore. [10]
Discuss the measures that may be adopted by the Singapore government to address the unemployment problems faced during a recession. [15]
END OF PAPER
10
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MERIDIAN JUNIOR COLLEGE Preliminary Examination Higher 1 ___________________________________________________________________
Economics
Paper 1
8819/1
13 September 2010 3 Hours
___________________________________________________________________
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2 Section A Answer all questions in this section. Question 1: Growth versus Market Failure - Chinas Perspective
Extract 1: China overtakes the United States to become worlds largest energy consumer International Energy Agency (IEA) calculations based on preliminary data show that China has now overtaken the United States to become the world's largest energy user. China is now facing the problem of how to combat the challenges of global warming. Being the world leader in both economic growth and carbon emissions, it is very hard for China to fight global warming, while simultaneously, not harming its robust economy. Moreover, due to the countrys size and influence, Chinas environmental concerns are no longer simply its own. In 2006, it was estimated that China emitted approximately 6 billion metric tons of carbon dioxide, approximately one-fifth of the worlds total. For those who have been following energy consumption trends closely, this does not come as a surprise. What is more important is the phenomenal growth in demand that has taken place in China over the last decade; also prospects for future growth still remain incredibly strong. Chinas demand today would be even higher still if the government had not made such progress in reducing the energy intensity (the energy input per dollar of output) of its economy. It has also very quickly become one of the worlds leaders in renewable energy, particularly wind power and solar energy, and paved the way for a big expansion of nuclear power. Recently, the Chinese government has given even more attention to the challenges of combating climate change. But the question is who should bear the responsibility of the CO2 and other harmful gas emissions when including all the Western countries, almost all the countries rely on productions from China. In 2001, the Five-year Plan for Environmental Protection by State Environmental Protection Administration (SEPA) in China set ambitious emission-reduction targets and boosted environmental spending to 700 billion yuan ($85 billion). A legal framework has been created. Beijing's good intentions, however, have so far had only limited impact, thanks to the vast, decentralised bureaucracy through which it is forced to govern such a huge country. Around the country, SEPA's branches, known as Environmental Protection Bureaus, are supposed to monitor pollution, enforce standards and collect fines. But they are more in thrall to local governments whose priorities are to maintain growth and employment in their jurisdiction than to head office in Beijing. It is no rarity, therefore, to find a bureau imposing a fine on a dirty local enterprise (thus fulfilling its duty), but then passing the money on to the local administration, which refunds it to the company via a tax break. SEPA's impotence is one reason why penalties, even when it can impose them, remain laughably light. The maximum he can fine a polluting company in Shanghai is 100,000 yuan or about $12,000. But just as fundamental is that China lacks an understanding of the concept that the polluter should pay.
Adapted from IEA (International Energy Agency) 20 July 2010
8819/01/JC2 PRELIMINARY EXAM /MJC/2010
3
Extract 2: Environment pays price of progress In 2006, it was discovered that all 10 of the worlds most polluted cities were in China. Although China has invested largely in alternative energy systems, its main source of fuel is still coal. Every year, the World Bank estimates, air pollution alone costs the Chinese economy $25 billion in health care costs and lost working hours. According to the United Nations Development Program, the main supply of drinking water to some 980 million Chinese is at least partially polluted. According to the World Bank, Chinas polluted water and air result in about 750,000 premature deaths each year. The damage to China's environment is so great that it is weighing on economic growth. "It's estimated that between eight and 10 percent of China's GDP is offset by environmental damage," says Professor Gerald Fryxell, a specialist in environmental management at the China Europe International Business School in Shanghai. One of the ironies, says Fryxell, is that China has some of the best and most wide-ranging environmental legislation in the developing world. Sheri Liao, of pressure group Global Village Beijing, describes China's environmental record in one word: terrible. Awareness of environmental issues is rising," says Liao. "But China's economy is growing much too fast and popular consciousness of the environment is still a long way behind." Perhaps China has failed in balancing between growth and the drive to improve standards of living. While there have been positive moves, such as the conversion of buses and taxis to less polluting LPG gas, Liao says the pace of development on other fronts has more than wiped out any benefits. It is, perhaps, a universal problem -- balancing the imperatives of growth and the drive to improve standards of living with the need to preserve and manage the environment for the health and benefit of future generations.
Adapted from Joe Havely for CNN, 03 May 2006
Extract 3: Clean air spells competitive edge Some newly arrived business executives and their families are chocked by what they find in many Asian cities: traffic-clogged streets, fume-belching vehicles and noxious smog limiting visibility and making the air unpleasant to. However, a minority of cities, including Singapore that manages to maintain a pleasant, pollution-free environment at least most of the time are finding that being clean and green can be significant part of the overall comparative economic advantage that determines where the international flow of talent and investment goes. For example, the Financial Times reported earlier this month that Hong Kongs worsening air pollution is prompting managers of some major hedge and asset funds to move to Singapore, reflecting a trend that could undermine the territorys status as a regional financial hub while enhancing the competitive position of Singapore. Singapore has imposed tough vehicle fuel emission standards and regulations to limit industrial pollution. The government has also made it expensive to own private cars while offering alternative public transport, including pollution-free, electric-powered mass rapid transit rail system with extensive and convenient connections. Japan has long adopted a similar approach while the South Korean capital, Seoul, has recently launched a similar strategy.
Adapted from The Straits Times, Aug 12, 2006
Figure 1: Forecasted China GDP and primary energy consumption
Figure 2: China GDP growth rate 2002 -2008
Figure 3: China unemployment rate 2002 -2008
Questions a
Explain the observations made while comparing between Chinas forecasted GDP and its forecasted primary energy consumption from 2006 to 2050. [4] Discuss the extent to which the data supports the view that China has failed to balance growth and improve standards of living. [4] Explain why harmful gas emission is a source of market failure. [4]
c d
Assess the relative difficulties faced by China and Singapore in adopting legislative measures to control pollution. [8] It is very hard for China to fight global warming without harming its robust economy (Extract 1). As an economist, how far do you agree with the above statement? [10]
Total Marks: 30
6 Question 2 Protectionism and Recession

Extract 4: International Commitment Necessary To Overcome Downturn In a press conference at Downing Street, British Prime Minister Gordon Brown stressed the need for international commitment to overcome the economic downturn. Mr Brown repeated his calls for countries to work together in response to global recession, saying trade would help "the poorest and most vulnerable". He said: "We are seeing a large fall in world trade. The 1930s brought protectionism in response to recession; in 2009 we must tackle protectionism head-on." The world should move from "beggar-thy-neighbour policies to support-thy-neighbour policies," he added. The Prime Minister also added that any economic stimulus package must "help the poorest, who are in the end the hardest hit by the global recession".
Adapted from BBC, 2009
Extract 5: China Ready to Accommodate on ASEAN-China FTA The ASEAN-China FTA the worlds third largest free-trade area came into effect on 1 January 2010. The FTA has a combined GDP of US$ 6.6 trillion, 1.9 billion people and total trade volume of US$ 4.3 trillion. In recent weeks, however, the regional media had reported on the apprehension raised by the private sector and industry associations in Indonesia which fear that the entry of cheaper Chinese products would undermine domestic manufacturing. Secretary-General of ASEAN, Dr. Surin Pitsuwan said that all FTA agreements, including the ASEAN-China FTA, provide for measures that will protect, assist and facilitate industry adjustments. These include safeguards, anti-dumping measures or modifications of concessions. Chinas State Councilor, Mr. Dai Bingguo meanwhile stressed that China is committed to common development and prosperity and that both ASEAN and China should seize the opportunities offered by the FTA and further develop their cooperation. Earlier in his remarks, Dr Surin said that economic and trade relations between ASEAN and China have strengthened significantly. Trade between ASEAN and China reached US$ 192.7 billion in 2008. This growth placed China as ASEANs third largest trading partner in 2008, accounting for 11.3 per cent of ASEANs total trade. Economic cooperation between ASEAN and China will see Chinas FDI inflows into ASEAN increase dramatically.
Adapted from ASEAN Secretariat, 22 January 2010
Extract 6: ASEAN Vows to Cut Tariffs as Recession Batters Regional Economy Southeast Asian leaders pledged to cut trade barriers and open more service industries as the bloc struggles to overcome a global recession that has eroded export demand and boosted protectionist sentiment. The leaders reaffirmed their determination to ensure free flow of goods, services and investment, the 10-member ASEAN said in a statement after meeting in Cha-am, Thailand. They agreed to stand firm against protectionism and to refrain from introducing and raising new barriers. ASEAN leaders warned of the dangers of measures aimed at shielding domestic industries and goods from overseas competition as the worldwide economic downturn threatens jobs and hurts manufacturing.
7
We want to be clear that the ASEAN countries are firmly committed to free trade, and well do whatever we can to make sure no countries resort to protectionist measures to try to ease their way out of the crisis, Thai Prime Minister Abhisit Vejjajiva said at a news briefing today. If any of that happens, and if all countries begin to join in, then everybody loses. Asias export-dependent nations are reeling from the global slowdown, which has slashed demand for the regions computer chips, cars and commodities. Amid the free-trade agreements, some countries are putting in place policies to help domestic businesses that may come at the expense of overseas ones. Indonesias Trade Ministry issued a decree ordering civil servants to use local products, Jakarta Globe reported Feb. 16, citing Trade Minister Mari Pangestu. The decree is aimed at boosting domestic demand and helping local industries including food, beverages, footwear, clothing and music, the report said. It is a normal reaction for countries to resort to protectionist measures in a slowdown, Malaysian Prime Minister Abdullah Ahmad Badawi told the Bangkok Post in an interview published Feb. 27. If we are not supportive of our own industries, and do not buy our own products and services we will have a serious problem, Abdullah said. As it is, we are told that countries which have been importing our products before are not going to be importing the same amount anymore. We have to protect our people.
Adapted from Bloomberg News 1st March 2010
Table 1: Chinas Key Performance Indicator 2003-2011*

China Real GDP (annual %change) Current Account balance (in billion) Fiscal Balance (% of GDP) Inflation rate (CPI in %) Exchange rate (average per USD) 2003 10 46 -1.2 1.2 8.28 2004 10.1 69 -0.4 3.9 8.28 2005 10.4 161 -0.2 1.8 8.2 2006 11.6 253 0.5 1.5 7.98 2007 13 372 2 4.8 7.61 2008 9.6 426 1 5.9 6.96 2009 8.7 284 -1.7 -0.7 6.84 2010 10.1* 264* -0.9* 1.8* NA 2011 9.3* 309* -0.3* 2* NA
*Estimates
Memorandum Items: OECD-wide real GDP growth (%) 2 3.2 OECD-wide inflation 2.4 2.3 OECD-wide fiscal balance (% of GDP) -4.1 -3.4 Current Account Balance (in US$ billion) USA -522 -631 Japan 136 172 Germany 48 127
2.7 2.2 -2.7 -749 166 142
3.1 2.3
2.7 2.3
0.6 3.2 -3.5 -706 157 245
-3.5 0.5 -8.2 -434 126 134
1.9* 1.3* -8.3* -506* 146* 162*
2.5* 1.2* -7.6* -566* 148* 199*
-1.3 -1.3 -804 172 190 -727 213 266
Source: OECD Report China in the 2010s- Rebalancing Growth and Strengthening Social Safety Nets
8 Table 2: Selected economic indicators of selected ASEAN countries, 2009

Singapore Components of GDP (percent of GDP at current market prices) Private consumption Government consumption Gross domestic capital formation Exports of goods and services Imports of goods and services Foreign direct investment, net inflows, (percent of GDP at current prices Gross domestic savings, (percent of GDP at current market prices) Fiscal balance, (percent of GDP at current market prices) 40.9 11.5 27.2 199.3 178.2 9.2 48.3 7.6 49.9 14.1 14.5 96.4 74.9 0.8 36.0 -7.0 55.0 13.3 21.8 68.4 57.9 2.3 31.7 -4.1 58.6 9.6 31.0 24.1 21.3 0.9 31.8 -2.3 73.9 10.5 14.6 31.7 30.8 1.2 15.6 -3.9 Malaysia Thailand Indonesia Philippines
Source: Asian Development Bank
Questions a b (i)
Summarize the changes in the external value of the Yuan from 2005 to 2009. [1] Suggest possible reasons for the relationship between Chinas current account balance and her fiscal balance from 2003 to 2009 as seen in Table 1. [4] Account for the change in Chinas projected current account balance between 2010 and 2011. [3] Compare Chinas economic performance with that of the OECD countries in 2009. [4] Using AD-AS analysis, evaluate the likely impact of the ASEAN-China FTA on the national income of the various ASEAN nations in Table 2. [8] The world should move from "from beggar-thy-neighbour policies to support-thy-neighbour policies" As an economic advisor to the Malaysian government, would you recommend this shift in policy amidst global recession? [10]
Total Marks: 30
(ii) c d e
10 Section B Answer one question from this section
(a) Using examples, explain and illustrate how private and social costs differ. [8] (b) How far do you agree with the proposition that economic activity of the government should be restricted to the provision of public goods within Singapore? [17]
In its annual review of Singapore's economy, the International Monetary Fund said the modest and gradual rise of the Singapore dollar "appears consistent with internal and external stability".
(a) Explain what might have caused an appreciation of the Singapore dollar.
IMF, Reuters Jul 26, 2010
[10]
(b) Discuss the view that for Singapore, the benefits of attempting to improve economic performance through a managed appreciation of its exchange rate, rather than interest rate, have outweighed the costs. [15]
END OF PAPER
MERIDIAN JUNIOR COLLEGE JC2 PRELIMINARY EXAM 2010
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NATIONAL JUNIOR COLLEGE SH2 Preliminary Examinations for General Certificate of Education Advanced Level Higher 1
ECONOMICS
Paper 1
8819/01
READ THESE INSTRUCTIONS FIRST Write your student registration number and name on all the work you hand in. Write in dark blue or black pen on both sides of the paper. You may use a soft pencil for any diagrams, graphs or rough working. Do not use paper clips, highlighters, glue or correction fluid. Section A Answer all questions. Section B Answer one question.
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NJC 2010
NATIONAL JUNIOR COLLEGE Economics Department
[Turn Over
Section A Answer all questions in this section. Question 1 Global Education Extract 1: Education in Singapore: Facts and Figures
In 2007, there were 86, 000 international students from 120 countries studying in Singapore. There are over 1,200 private education organizations and 44 pre-tertiary schools offering international curricula in Singapore. Raffles Education Corp, the largest private education group in Asia, has established its international headquarters in Singapore. About 61,000 students are studying in its 28 colleges around the Asia-Pacific. In 2008, Tisch Asia appointed Oliver Stone, a three-time Academy Award winning film-maker, as its Artistic Director. Singapore emerged first in both Mathematics and Science in a 49-country study of Grade 4 (Primary 4) and Grade 8 (Secondary 2) students conducted in 2002-03 (Trends in International Mathematics and Science Study). Source: Economic Development Board (EDB) website, 2010
Extract 2: Growth in Singapores Private Education Sector As Singapore marches on to becoming the regional education hub it set out to be in 2002, several established names in the private education industry here have plans to expand so they can cater to higher demand for their programmes. The sector's contribution to gross domestic product doubled from 1.9 per cent, or $3 billion, in 2002 to 3.8 per cent, or about $8 billion, in 2007. In five years, the Government plans to increase this to 5 per cent, as part of its Global Schoolhouse vision, which is to draw world-class institutes to set up operations here. With the improvement in physical infrastructure, active beefing up of school faculty, aggressive promotion by the Singapore Tourism Board and the introduction of the new Private Education Act, numbers seem set to grow further. Source: The Straits Times, 12 August 2010
Table 1: Singapore Government Recurrent Expenditure on Education Per Student (S$) Level Primary school Secondary school1 Junior College2 Institute of Technical Education Polytechnics Universities3 2004 3,575 5,746 8,850 9,399 10,695 17,609 2008 5,397 7,551 11,094 11,106 13,479 19,664 2009 5,643 7,864 10,968 10,111 12,617 19,157
Source: Singapore Yearbook of Statistics, 2009
Table 2: Enrolment in Educational Institutions4 2004 Total Primary Schools Secondary Schools Pre-University Institute of Technical Education Polytechnics National Institute of Education Universities 675,990 296,419 213,534 24,681 19,207 62,031 3,042 57,076 2008 Number 704,117 279,272 217,081 32,579 24,367 76,756 5,034 69, 028 2009 704,787 272,254 217,230 32,110 24,846 80,703 4,934 72,710
Source: Singapore Yearbook of Statistics, 2009
--------------------------------------------------------------------------------------------------------------1
excludes independent schools includes centralized institutes Includes NTU, NUS and SMU Figures for primary, secondary and pre-university exclude private schools
4 Extract 3: Cross Border Tertiary Education Cross-border tertiary education refers to the movement of people, programmes, providers, curricula, projects, research and services in tertiary education across national jurisdictional borders. The provision of tertiary education abroad, through academic partnerships, franchising, the opening of a branch campus or other arrangements, has grown significantly. Cross-border education can typically help to expand quickly a tertiary education system and to increase the countrys stock of highly skilled human capital. Cross-border tertiary education can be a helpful capacity development tool that countries should consider in their development strategies. An appropriate regulatory framework in importing countries is important to reap its benefits. Addressing the cross-border challenges and opportunities will typically lead to reconsider tertiary education
policies as a whole and not only foreign provision

Source: Cross Border Tertiary Education Report, OECD and The World Bank, 2007
Extract 4: No Barriers to Free Trade in Minds
According to OECD figures, the number of globally mobile students, many of them heavily recruited, has increased 57% in the past decade alone. Half the world's top physicists no longer work in their home countries. There are long-standing worries in the developing world about a brain drain, and the converse concern in the West that talented foreigners will crowd out domestic students. Competition for students is fierce and U.S. market share fell to 19% in 2007 from 25% in 2000. This intense scholarly competition and exchangecall it free trade in mindshas led to periodic outbursts of academic protectionism. In India, for example, foreign universities are barred from setting up branch campuses. In the U.S. and Britain, visa barriers for students and researchers often frustrate university recruitment efforts. Increasing knowledge is not a zero-sum game. Knowledge is a public good that can be used by everyone. Intellectual gains by one country often benefit others. Chinese research may well provide the building blocks for innovation by US entrepreneurs - or those from other countries. The economic benefits of a global academic culture are significant. Just as free trade provides the lowest-cost goods and services, benefiting both consumers and the most efficient producers, global academic competition is making free movement of people and ideas, on the basis of merit, more and more the norm, with enormously positive consequences for individuals, universities, and countries.
Source: The Wall Street Journal, 14 May 2010 and TODAY, 13 August 2010
Questions (a) (i) Compare and account for the Singapore governments recurrent expenditure on education per student for the different levels of education from 2006 to 2009. With reference to Tables 1 and 2, explain with the aid of a diagram, the case for government expenditure on primary education. Comment on the price elasticity of demand and supply for private education in Singapore. Substantiate your answer. Using economic analysis, account for the growth in private education in Singapore. [4]
(ii)
[4]
(b) (i)
[3]
(ii)
[4]
(iii) Examine the impact of this growth on the Singapore economy. (c) Explain what you understand by the statement knowledge is a public good that can be used by everyone. (Extract 4, Para 4)
[5] [2]
(d) With reference to the extracts and your own relevant knowledge, assess whether on balance the world would benefit from free trade in minds. (Extract 4, Para 3)
[8]
[Total: 30]
6 Question 2 Fiscal Stimulus for the Global Recession Extract 5 Global outlook and policy challenges Economies around the world have been seriously affected by the financial crisis and slump in activity. The advanced economies experienced an unprecedented 7 percent decline in real GDP during the fourth quarter of 2008, and output is estimated to have continued to fall almost as fast during the first quarter of 2009. Although the U.S. economy may have suffered most from intensified financial strains and the continued fall in the housing sector, western Europe and advanced Asia have been hit hard by the collapse in global trade, as well as by rising financial problems of their own and housing corrections in some national markets. Emerging economies too are suffering badly and contracted 4 percent in the fourth quarter in the aggregate. The damage is being inflicted through both financial and trade channels, particularly to east Asian countries that rely heavily on manufacturing exports and the emerging European and Commonwealth of Independent States (CIS) economies, which have depended on strong capital inflows to fuel growth. The World Economic Outlook (WEO) projections assume that financial market stabilization will take longer than previously envisaged, even with strong efforts by policymakers. Overall credit to the private sector in the advanced economies is expected to decline in both 2009 and 2010. Meanwhile, emerging and developing economies are expected to face greatly curtailed access to external financing in both years. The difficult and uncertain outlook argues for forceful action on both the financial and macroeconomic policy fronts. Policymakers must be mindful of the cross-border consequences of policy choices. Initiatives that support trade and financial partners including fiscal stimulus and official support for international financing flows will help support global demand, with shared benefits. Conversely, a slide toward trade and financial protectionism would be hugely damaging to all, a clear warning from the experience of 1930s beggar-thy-neighbour policies. Source: International Monetary Fund: World Economic Outlook, April 2009
Extract 6 The next front is fiscal When credit markets are dysfunctional, private demand is fading and confidence weak, a fiscal jolt is a good option. Cutting taxes puts extra cash straight into people's pockets. By stepping up their own spending, governments can directly boost demand and employment. Some countries have more scope for fiscal stimulus than others. Many governments in emerging markets, especially those with big external deficits, will be limited by investors' unwillingness to hold their debt. That is why Hungary tightened its budget this week. At the other extreme lies China with huge foreign exchange reserves, and a current account and budget surplus. Within the rich world, countries such as Italy, with ageing populations and high debt burdens, have less room. America has the greatest scope for short-term stimulus, despite running the world's biggest current account deficit. That is because dollars and US Treasury bills rank as safe havens nowadays. Also, because its taxes are lower and social safety nets less generous, America has fewer "automatic stabilisers" than Europe, where spending on unemployment benefits automatically rises further in a downturn. The scale and mix of a fiscal stimulus will differ by
7 country. In America, federal aid to the states makes a lot of sense. In Europe, a cut in valueadded taxes would be good. China should boost social spending. Source: Adapted from Economist; 1 November 2008, Vol. 389 Issue 8604
Extract 7 Indias fiscal package India has little room for a big-bang fiscal stimulus package like China's 4 trillion yuan plan, according to economists. Instead, the government is hoping that existing spending plans can help it ride out the global financial storm. Still, spending outlined in the February budget went up more than 6 percent to 7.51 trillion rupees, or $158.5 billion, in a package criticized by many as populist ahead of national elections in 2009. The government asked parliament for an additional $21.7 billion last month to finance a programme to waive farm debts and subsidise food and fertilizers. Analysts said this would result in higher borrowing, putting pressure on government finances and the fiscal deficit. For now, India is relying on these projects, which also include a national job guarantee plan and an urban renewal mission, to keep the economy ticking, rather than on a big new stimulus package. But economists say India has a poor track record in ensuring projects get implemented, undermining their effectiveness as a source of economic stimulation. Nearly 35 percent of its spending still goes for subsidies and interest payments. Corruption and bureaucracy are also obstacles to funds reaching their goal, as is projects starting or finishing on time, although the government has streamlined some of its approvals. "Our capacity to spend and do quality work is limited," said Saumitra Chaudhuri, economic adviser at the ratings agency ICRA. "We are quite good at wasting money such as subsidies for petroleum products and fertilizers. So any blanket call for further public expenditure is very misdirected." Source: Adapted from The New York Times, 10 November 2008
Table 3: Key Economic Indicators (2008) GDP (current prices) per capita (US$) 3,315.3 1,016.2 38,972.1 43,785.3 46,859.1 Government gross budget balance as % of GDP -0.7 -4.9 5.0 -5.4 -6.1 Inflation rate (%) Exports of goods and services as % of GDP 37.8 24.0 234.3 28.9 13.0 Imports of goods and services as % of GDP 29.2 30.3 215.3 32.0 17.7
China India Singapore United Kingdom United States
5.9 8.3 6.5 3.6 3.8
Source: World Economic Forum, Global Competitiveness Report 2009-2010
8 Table 4: Summary of Singapores Fiscal Position 2004 10,127.6 5.46 2005 13,397.5 6.66 2006 21,017.7 9.50 2007 29,768.3 11.83
Government budget balance (Million dollars) Government budget balance as % of GDP
Source: Singapore Yearbook of Statistics 2009
Questions (a) (i) Describe the trend in the Singapore government budget balance between 2004 and 2007. Explain the theoretical effect of the trend described in (i) on Singapores national income, assuming all other things remain constant. Using only data in Table 2, compare the current and future standard of living of an average US resident with that of a Singapore resident. Explain other indicators you would use to compare the relative standard of living between the US and Singapore.
[2]
(ii)
[2]
(b) (i)
[4]
(ii)
[4]
(c)
The scale and mix of a fiscal stimulus will differ by country (Extract 6 Paragraph 3). Discuss.
[8]
(d) It is mentioned that policymakers must be mindful of the cross-border consequences of policy choices (Extract 5 Paragraph 3). Discuss the view that protectionism is potentially damaging to all countries.
[10]
[Total: 30]
Hong Kong expatriates are fleeing the country. Hong Kong's air contains 1.3 times more particles of soot and other pollutants than Tokyo's, 1.7 times Singapore's and 3 times more than New York's. More than half of the pollutants come from its own power plants, vehicles and ships' burning bunker fuel, the other 40% from roadside emissions by buses. Source: The Straits Times: 16 May 2010 (a) Using economic analysis, explain how the situation described above is an example of market failure. Assess the various policies that the Hong Kong authorities could implement to alleviate the above situation. [10]
(b)
[15]
In Singapore, inflation hit a 26-year high of 7.5 per cent in April and May partly due to the rise in the Goods and Services Tax over the previous year. In response, the Monetary Authority of Singapore (MAS) gave the Singapore dollar an immediate boost to help offset more expensive imported goods. However, the MAS reversed its Singdollar position in October that year, adopting a neutral stance that signalled its change of priorities from targeting inflation to stimulating economic growth. Source: The Straits Times: 30 Dec 2008
(a)
Explain the rationale for the change in the stance on the Singdollar over this period. Discuss whether this policy alone was adequate to stimulate the economic growth in Singapore.
[10]
(b)
[15]
10
NATIONAL JUNIOR COLLEGE 2010 SH2 Preliminary Examinations
ECONOMICS Higher 1
Wednesday
8819/01
15 SEPTEMBER 2010
COVER SHEET
Name Class : : Question Marks Final
CASE STUDY
/30 /30 /60 /70
ESSAY /25 Total /30
PRELIMINARY EXAM 2010

NYJC
Economics JC2 H1 (8819)
PAPER 1 Saturday
18 September 2010 0900 1200 TIME : 3 hours 00 mins
INSTRUCTIONS TO CANDIDATES Do not open this paper until you are told to do so.
Write your name, class and name of economics tutor in the space provided on the writing paper. Answer all questions. The number of marks is given in the brackets at the end of each question. Write your answers on the writing papers provided. If you use more than one sheet of paper, fasten the sheets together. You are advised to spend several minutes per question reading through the data and questions before you begin writing your answers.
There are _9_ printed pages including this cover page
J2 H1 Economics (8819/1)
Section A Answer all questions in this section Question 1: Alcohol consumption

Extract 1
Binge drinking an "emerging issue in Singapore", says Health Promotion Board

By Alicia Wong and Sufian Suderman, TODAY (Singapore) | Posted: 17 December 2008 0940 hrs (Adapted)
SINGAPORE: Binge drinking consuming five drinks or more for males, or four drinks or more for females, within two hours is an emerging issue in Singapore, said HPB in a tender document posted on the GeBIZ website. The 2006 Student Health Survey showed that one in two students aged 12 to 17 has tried alcohol, even though it is illegal for them to buy it. This is a worrying trend, said HPB, as those who start drinking before age 15 are four times more likely to become alcohol-dependent than those who start at 21. One problem: Clubs closing later these days. The longer (people) are out clubbing, the more they drink, said Ms Sheena Jebal, the chief executive of NuLife Care and Counselling. Before hitting the nightspots, young clubbers may buy and chug alcohol from a convenience store first as it is cheaper, to get high. Many turn to cheap chinese wine, which has 40 to 50 per cent alcohol content, compared to four per cent for beer. Parents unwittingly aid in such dangerous behaviour, warned Ms Jebal, who has conducted research on this area. Family members tend to trivialise the issue as a one-time thing, so the youth keep doing it. Some mothers even give their children more allowance to support the habit, out of fear their children would end up stealing or prostituting themselves, she said. Then there is peer acceptance of binge drinking as a social norm. Mr Yusof Ismail, chief executive of the Ain Society, said: When there are so many people doing this, the guilt mechanism doesnt work. He added that the rebellious factor in binge-drinking was, in itself, addictive to the young. Last year, Asia Pacific Breweries Singapore spearheaded a youth-led moderate drinking campaign, Get Your Sexy Back. This year, it became a full-fledged programme driven by youth volunteers. Extract 2
Rolling away the barrel
The Economist (April 10th 2010) Adapted
Across Europe, economies are stagnating and unemployment is climbing. Reason enough, you might think, to hit the bottle. Europeans put away over 9 litres of alcohol a year per person, twice the global average. The European commission has declared that alcohol is a key public-health and social concern. Yet in most big EU countries drinking is in decline. In France and Italy the average adult drinks over a third less than he or she did 30 years ago. What explains the great sobering-up? In part, the drivers appear to be socially responsible. Rising numbers of urban workers and the insidious spread of Anglo-Saxon fast food habits are working against the old traditions of a glass with breakfast followed by a long lunch fuelled by a bottle or two. These countries also had a lot further to fall. In 1980 France, Italy and Spain were the booziest nations in Europe.
Figure 1
SINGAPORE Per capita Consumption (litres of pure alcohol) age 15yrs+
3 2.5 2 1.5 1 0.5 0 Wine Spirits Beer Total
Figure 2
(EUROPE) Litres of pure alcohol consumed per person (Adult 15yrs+)
20 18 16 14 12 10 8 6 4 2 0
Britain France Italy Germany 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01
Extract 3
Hello beer! Bye wine!

Christopher Lim | The Business Times | Singapore, March 5, 2010
MOVE over, wine bars. The art of wine appreciation and food to match may well be losing its appeal if the recent activity in the beer scene is anything to go by. Restaurants which feature beer prominently on their menus are increasing in number, while local breweries are starting to quench thirsts overseas, getting a foothold even in beer-obsessed countries such as Australia. Some are still considering local expansion, but are far more confident of regional expansion. For example, after 13 years in Singapore, Brewerkz is planning to expand to Hong Kong in the fourth quarter of this year. One factor that doesnt seem to be an issue for beer restaurants in Singapore is the amount of time it takes for initial investments to turn a profit. Oosters the latest beer restaurant to close a branch took only half a year for its flagship branch at Far East Square to recover initial investments when it first opened.
Table1: Price of a pint of beer around Singapore Location Clarke Quay Suntec Orchard China Town Tampines Punggol Price $13.12 USD $8.20 USD $6.72 USD $4.43 USD $2.95 USD $2.48 USD
Source: pintprice.com
We have been around for seven years; that says a lot, says Irwin Pang, general manager of the Belgian brasserie. Business has been great so far despite the economic downturn in 2009. Things are picking up and I hope for things to get better, he says. The dining scene in Singapore is hotting up as more players enter the fray. The challenges lie in the availability of trained F&B workers from the kitchen and from the service sides. And the challenges mainly come from the lack of manpower, the rental costs and rising of raw material costs," says Ang Kiam Meng, President of the Restaurant Association of Singapore.
Questions
a) i Compare the trends in alcohol consumption in Europe with that of Singapore from 1993 to 2001. Using demand and supply analysis, explain the likely reasons for the above trends. (2m)
ii
(4m)
b)
From figure 1, describe the changes in the composition of total alcohol consumption in Singapore from 1993 to 2001.
(2m)
c)
Using examples, account for the differences in the price of a pint of beer at various locations around Singapore.
(4m)
d)
Singapore brewers should target regional rather than domestic growth for their own benefit. Do you agree?
(8m)
e)
Explain clearly why alcohol could be considered a demerit good and evaluate the measures that governments can take to alleviate the key public-health and social concern of alcohol consumption.
(10m)
[TOTAL: 30m]
Question 2: Economic Recovery in Spain and Germany

Table 2: Selected Economic Statistics, 2009 Country France Germany Spain Real GDP (% Change) -2.5 -4.9 -3.6 Inflation Rate (% Change) 0.1 0.2 -0.3
Table 3: Unemployment Rates as Percentage of Labour Force Country France Germany Spain 2005 8.9 10.5 9.2 2006 8.8 9.8 8.5 2007 8.0 8.3 8.3 2008 7.4 7.2 11.3 2009 9.1 7.4 18.0
Table 4: Current Account Balance as Percentage of GDP Country France Germany Spain 2005 -0.4 5.1 -7.4 2006 -0.5 6.4 -9.0 2007 -1.0 7.7 -10.0 2008 -2.3 6.7 -9.7 2009 -2.2 5.0 -5.4
Figure 3: Spain Annual Percentage Change in Labour Productivity and Wages
Figure 4: Germany Annual Percentage Change in Labour Productivity and Wages
Source: OECD Economic Outlook, 25 May 2010
Extract 4: Recession fears engulfing Europe Many EU nations are in real trouble. In Spain, economy minister Pedro Solbes declared that the country was facing its "most complex crisis ever" following a collapse of the property market. Spain has suffered a housing market collapse and many people have run up huge personal debts. Nick Kounis, chief economist of the Belgian bank Fortis, says he has become increasingly gloomy about the eurozone economy because of rising oil prices. "They have been the main reason the European Central Bank brought forward its interest rate rises - and higher rates will dampen demand and have a direct impact on consumer spending," he says. He is also concerned about the situation in emerging market countries with which the EU does a great deal of trade. "These emerging economies are hugely important to the eurozone, because they buy a large percentage of our exported goods. Most of the recent growth in European exports has been to those countries. "But rising oil and food prices are hurting their economies too and that is bound to have a knock-on effect on Europe's economy." Adapted from BBC News, 17 July 2008
Extract 5: China warns EU on protectionism While the EU and China are major trade partners, frictions have been on the rise, especially with Europe opening a growing number of anti-dumping cases against Chinese industries ranging from, candle-makers to screws and bolts. Meanwhile, Europe remains frustrated at obstacles to doing business in China's vast and fast growing markets and is also deeply concerned about counterfeiting. China's Vice Premier Wang Qishan warned Europe on Thursday about turning to protectionism in the depths of an economic crisis at the start of two-days of high-level talks with EU officials. "Both sides should oppose protectionism in unequivocal terms," Wang told senior EU commissioners, including trade chief Catherine Ashton, as the talks got underway in Brussels. "The beggar-thyneighbour approach will only lead to problems," he warned, insisting that "China and the European Union have a lot to offer each other. Source: EUbusiness Ltd, 7 May 2009
Extract 6: The Crisis in Spain Every member of the eurozone has weaknesses that limit its potential. Spain seems to contain a continents-worth of frailities in just one country. Like Ireland, its consumers are weighed down by huge mortgage debts. Spain has a rigid system for setting wages. The attempt to free up Spains job market by allowing temporary work contracts has reduced incentives to train workers, holding back productivity. Spain has steadily lost cost competitiveness against the euro zones core countries, centred around Germany. Politicians in Spain have woken only recently to the need for reform. The wage system demands it most urgently. Pay is set centrally through a complex system of agreements across regions and industries. That means wages adjust only slowly to changes in business conditions. Despite a deep recession and zero inflation, pay growth averaged 3% last year, according to the OECD. That helps explain why Spains jobless rate shot up so quickly; it now stands at 19.5%. Source: Economist.com, 11 February 2010
Extract 7: Germanys exporting prowess is leaving the rest of the euro area behind Forecasters reckon that GDP for the euro zones economy grew at an annualised rate of around 2% in the second quarter, a decent number by European standards. Fittingly for the country that gave most to bail out the euro zone, Germany did rather better. Its GDP growth rate may have been 4% or more. Business confidence in Germany certainly looks perkier. In contrast to the trend in the rest of the euro zone, unemployment in Germany has fallen lower than even before the financial crisis. The job market has been helped by a short-time working scheme and flexible hours. Many of the workers whose hours were cut have been quickly drawn back into full-time work. Germanys revival has been built largely on exports. Timo Klein, an economist at Global Insight in Frankfurt, is upbeat about Germany. "If you compare Germany with the rest of the eurozone, it is still outperforming," he says. That is partly because exports of specialised German equipment and machinery are still strong. "These goods are not easily substituted by similar products from other countries," says Dr Klein. "In terms of quality, many German companies are world leaders. If you want the best of certain type of product, then you have little choice but to buy it from Germany." Having sold as much as they could to rich-world countries, German companies are looking for fresh sources of growth in Asia and Latin America. German firms have squeezed the euro zone like a lemon and then thrown it away, says Marco Annunziata, at UniCredit. Germanys shift away from European markets started long before recession hit. By 2008 exports of goods to the euro zone accounted for 17% of German GDP, compared with 23% to countries outside it, says Julian Callow at Barclays Capital. Germanys bent for engineering fits with the demands of its newer customers such as industrialising countries like China and Brazil. A bigger surprise is how well German cars have been selling to well-to-do consumers in emerging markets. China is now the main market for the Mercedes S-class, a car with a price tag that is prohibitive for most rich-world consumers. Other German carmakers, such as VW and BMW, are also living well off Chinese demand. Many car plants have returned to full capacity far sooner than had seemed likely just a year ago. Adapted from Economist.com, 8 July 2010
Questions (ai) (aii) What happened to the general price level in Spain in 2009? Using Tables 3 and 4, explain which country performed the worst in 2009. Compare the trends in labour productivity for Spain and Germany between 2007 and 2009. How far does the data in Figure 3 help to explain the changes in the current account balance for Spain from 2007 to 2009? Explain how Europe will be affected by the rising oil and food prices faced by the emerging economies. The beggar-thy-neighbour approach will only lead to problems. (Extract 5) Do you agree? Discuss the view that Spain should follow the measures taken by Germany to address its macroeconomic problems. [1] [3]
(bi)
[2]
(bii)
[4]
(c)
[4]
(d)
[6]
(e)
[10]
[Total:30m]
Section B
Answer one question from this section.
Healthcare services are provided free in France, but not in Singapore. (a) Explain why the provision of healthcare services may lead to market failure. (b) Discuss whether the Singapore government currently adopts appropriate policies to overcome this market failure.
[10] [15]
(a) (b)
Explain natural unemployment and demand-deficient unemployment. [10] Discuss whether the use of demand management policies can solve the problem of unemployment in Singapore. [15]
Candidate Name: __________________________ Index number: __________
CT Group: _______
PIONEER JUNIOR COLLEGE JC 2 Preliminary Examination 2010
ECONOMICS
Higher 1 Paper 1
8819/01
Thursday 16 September 2010 3 hours
Additional materials: Writing Paper
READ THESE INSTRUCTIONS FIRST Write your class, index number and name on all the work you hand in. Write in dark blue or black pen on both sides of the paper. You may use a soft pencil for any diagrams, graphs or rough working. Do not use staples, paper clips, highlighters, glue or correction fluid.
At the end of the examination, fasten your answers for Questions 1, 2 and 3/4 separately. The number of marks is given in brackets [ ] at the end of each question or question part.
This document consists of 10 printed pages [Turn over
2
Section A Answer all questions in this section. Question 1 Extract 1: Bold targets to ensure that tourism remains a key economic pillar On 11 January 2005, Minister for Trade and Industry, Mr Lim Hng Kiang, unveiled the Singapore Tourism Boards (STB) bold targets to ensure that tourism remains a key economic pillar. Against the backdrop of growing opportunities from both traditional outbound markets including the United States Japan, and rapidly growing markets such as China and India, the STB is setting ambitious targets for 2015. Singapore is hoping to draw more visitors in the future through various initiatives including sports events tourism. Projects under this scheme include a new sports stadium and hosting other sporting events, including the inaugural Formula One Grand Prix in 2008 and the Youth Olympic Games in 2010. Source: Singapore Tourism Board, 2005
Table 1 Singapore Tourism Board Targets for 2015 Indicator Tourism Receipts (S$ billion) Visitors Arrivals (million) Tourism Employment 2004 10 8 150,000 2015 Target 30 17 250,000
Source: Singapore Tourism Board, 2005
Table 2 Source of Singapores Tourism Revenue Top 7 Countries (S$million) 2004 9,800 1,940 804 650 673 728 537 445 2005 10,871 2,083 875 843 763 763 544 522 2006 12,395 2,219 1,118 863 805 735 553 565 2007 14,121 2,452 1,239 1,149 936 731 649 641 2008 15,168 2,600 1,358 1,226 1,023 738 682 630
Tourism Receipts (All Countries) Indonesia China India Australia Japan United Kingdom United States
Source: Yearbook of Statistics 2010, Singapore Department of Statistics
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Extract 2: F1 Races Into Town Singapore's Minister of State for Trade and Industry, Mr S. Iswaran, who is spearheading the government's involvement in the F1 project, says F1 is needed to boost Singapore's tourism industry which accounts for 3 to 4 per cent of gross domestic product. The event would not only give a strong boost to the tourism sector, but also generate broader economic spin-offs. The Formula 1 race is expected to generate a total of S$100 million in tourism receipts as well as bring Singapore closer to its goal of being a vibrant global city that is abuzz with high quality entertainment and events. However F1 will not get an A1 for environmental friendliness, given its high petrol consumption and the amount of carbon emissions. Holding a night race will also require an estimated 500 high-intensity light poles powered by dedicated generators. Then there is the pre-F1 construction mess as well as the noise pollution during the race. At full throttle, each cars noise level is louder than a jumbo jet. Some measures to minimize these problems include planting more trees along the track as a form of carbon sinking as well as encouraging the public to take the MRT instead of driving into town. Source: Various
Extract 3: A bumpy ride ahead? Economists agree that Singapore must promote tourism and other services to counter a decline in some manufacturing industries, particularly the mainstay electronics sector. Tourism is seen as favorable in employing large numbers of low-skilled workers. However, some challenges remain. First, it is the costs of funding the race. With government funding amounting to 60% of the $150m required annually, Mr Iswaran said the government planned to impose a special F1 sales tax on hotels to defray some of the costs. It is expected that track-side hotels will benefit from the highest increases in room rates compared to those further away. The tourism and hospitality sector would also need to focus its efforts on developing a skilled tourism workforce to fill the additional jobs created in the tourism industry. Efforts must not be spared in raising service standards. In the World Economic Forum's annual competitiveness survey on customer service last year, Singapore was ranked 26th, down from 17th position a year ago. In situations such as a global recession, sports tourism and other lifestyle industries would probably be the first few to experience the impact. Unforeseeable events such as the SARs epidemic would affect global tourism as people reduce their probability of being infected by staying home. In addition, Singapore faces stiff competition as other countries in the region are also attempting to develop their own tourism sectors. Source: various
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PJC H1 Prelim 2010
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Questions (a) (i) Using Table 2, summarise the trends in tourism receipts. [2] [2]
(ii) Explain the possible reasons for the above trends.
(b) (i)
Using a demand and supply diagram, explain how hosting the Formula One Grand Prix and the imposition of a sales tax would affect the market for hotel accommodation. [6]
(c)
(i)
What is meant by price elasticity of demand?
[2]
(ii) Using the concept of price elasticity of demand, explain why consumers staying at the track-side hotels are more likely to bear a heavier tax burden compared to those staying further away. [3]
(d) (i)
Explain how the existence of negative externalities results in market failure.
[4]
(ii) Discuss ONE possible measure to correct negative externalities arising from events like F1. [3]
(e)
Discuss the likely macroeconomic impact of promoting sports event tourism on the Singapore economy. [8]
[Total 30 marks]
PJC H1 Prelim 2010
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BLANK PAGE
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PJC H1 Prelim 2010
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Question 2 Global Financial Crisis
Extract 4: Bank of England's dilemma: A house price crash or soaring inflation Which would you rather face: a recession and house price crash or years of soaring seventies-style inflation? For the past decade, inflation was kept unusually low by the influx of cheap goods from China. This meant the Bank of England (UKs Central Bank) could keep interest rates low without driving inflation higher. But as China's appetite for energy and food ballooned, so have the prices of oil, wheat, meat and most other important staple goods. It has come at the worst possible time: The UK economy is facing the sharpest slowdown in 16 years and the outlook for the housing market and property prices is at its worst. In normal circumstances, the Bank of England would have already cut the official interest rate far and fast. However, doing so would risk pushing up inflation, which is already stubbornly above the target set. It might seem tempting to let inflation go and put off the immediate pain, but this could be poisonous for the economy in the long-run. Source: Telegraph, 24 Apr 2008
Extract 5: Dent in Singapore's financial hub dream Despite its limited exposure to the toxic securitized financial products which had blown big holes in Western banks' balance sheets, Singapore's economy is in a bad way. That's because its economic growth is still highly reliant on commercial trade, with merchandise exports representing over 220% of gross domestic product (GDP). Typically, around 20% of those shipments are destined for US markets, making Singapore's economic growth highly correlated to America's performance. As such, Singapore is already technically in recession, where a slump in exports pushed quarterly growth into negative territory for the second quarter in a row. Third-quarter gross domestic product (GDP) contracted 6.3% from the previous quarter. The Ministry of Trade and Industry revised its full-year economic growth forecast down for the second time this year, recently trimming its projection to "around 3%" from 4% to 5% previously. Meanwhile, inflation earlier this year reached a 26-year high and consumer prices are on pace to rise between 6% and 7% this year, according to the Monetary Authority of Singapore (MAS). Singapore's National Trade Union Congress has (NTUC) warned that retrenchment will rise next year as business continues to deteriorate. Singapore's ability to maintain a position as a global financial hub - already the world's largest private banking center next to Switzerland - will also likely require a rethink in the wake of the crisis, some analysts say. The decline in stock market wealth across the globe means the need for wealth managers and private bankers will decline in the months, if not years, ahead. Source: Asia Times, 6 Nov 2008
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Extract 6: Deglobalisation The economic meltdown has popularised a new term: deglobalisation. Globalisation means the global integration of the movement of goods and capital. Each of these processes is now in trouble. World trade has plunged. The downturn has been sharpest in countries that opened up most to world trade, especially East Asias tigers. The downturn has also hurt rich countries that specialise in old-fashioned manufacturing supposedly a safer activity than the financial sector. Germany and Japan, big exporters of capital goods, cars and electronics, will do worse with their economies shrinking by 2.5% and 2.6%. Trade problems have been worsened by shifts in capital flows. The United Nations Conference on Trade and Development (UNCTAD) says worldwide FDI inflows shrank 21% in 2008 to $1.4 trillion. In response, the 10-member Association of Southeast Asian Nations (ASEAN) has launched a new joint charter to move closer to becoming a unified economic bloc. Greater regional integration among them is viewed as necessary to maintain global competitiveness as other regions of the world, including Europe and North America, have established trade and investment blocs. The ASEAN integration aims to bring down trade barriers at a time when global economic turmoil threatens to spur a new era of global protectionism. The crisis has revealed certain weaknesses in the Singapore economy. Singapores high export dependence on the United States and Europe and its small share of the exports catering to China domestic market makes it vulnerable. Chinas imports from Singapore for its own domestic use comprise just 37 percent of Singapores domestic exports to China (including oil), and a mere 4.2 per cent of Singapores total domestic exports. Singapores low personal consumption which is less than 40 per cent of gross domestic product means that domestic demand is insufficient to counter the fall in external demand. The low consumption is partly due to the high levels of home ownership which causes many Singaporeans to be asset-rich but cash-poor. In addition, with increasing competition from China, more electronics firms are relocating from Singapore to China. Unlike regional competitors such as Taiwan and South Korea, the lack of local electronics champions to anchor the industry in Singapore may have intensified the relocation trend. Sources: Asia Times, 17 Dec 2008 and The Economist, 19 Feb 2009, The Straits Times, 16 Jan 2009
PJC H1 Prelim 2010
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Figure 1: UKs and Singapore % change in House Prices UK
Source: Halifax, UK
Singapore Annual%ChangeinHouse Prices
Source: Urban Redevelopment Authority, Singapore
Table 3: Gross Domestic Product (GDP) and its components in UK and Singapore (% of total), 2008 UK 1561.2 By expenditure (% of total) Consumption Government expenditure Investment Exports Imports 64 22 17 29 32 41 11 31 234 215 Singapore 113.1
GDP (US$b) 1990
Source: United Nations Statistics Division
PJC H1 Prelim 2010
Table 4: UK and Singapore: selected economic indicators 2007-2009 UK 2008 -0.68 3.6 5.8 -43.2 -1.6 -3.5 -0.8 0.55 91.4 Singapore 2008 1.8 6.6 2.2 50.7 20.2 9.6 -5.7 1.41 10.9
Real GDP (% change) Inflation rate (%) Unemployment rate (%) Current account (US$ billion) Current account (% of real GDP) Budget balance (% GDP) Productivity growth (%) Exchange rate (per US$) Inward FDI flows (US$ billion)
2007 0.6 2.3 5.4 -72.9 -2.6 -0.3 2.1 0.50 186.4
2009 -0.73 2.2 7.8 -24.2 -1.1 -7.1 -3.2 0.64 45.7
2007 8.2 2.1 2.3 71.1 28.9 12.1 1.6 1.51 35.8
2009 -1.3 0.6 3.2 47.1 19.0 -1.8 -5.2 1.45 16.8
Source: http://www.singstat.gov.sg/, http://www.statistics.gov.uk
Questions (a) (i) Compare the change in house prices for UK and Singapore in 2008 in Figure 1. [2]
(ii)
Using data from Table 4, explain the change in house prices for UK in 2008.
[2]
(b)
Using data from Table 4, explain the factors that might cause the change in UKs current account balance from 2007 to 2008. [4]
(c)
(i)
With the help of an AD/AS diagram, explain how changes in the price of oil and price of housing had affected UKs equilibrium output and price level in 2008. [4] Comment on the use of interest rate to promote higher economic growth in UK. [4]
(ii)
(d) Using data, analyse the effects of the global financial crisis on the Singapore economy. [6]
(e)
As a consultant economist, assess the options that you would present to the Singapore government as possible responses to the challenges posed by the slowdown in world trade and foreign direct investment. [8] [Total 30 marks]
PJC H1 Prelim 2010
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[Turn over Section B Answer one question from this section.
(a)
Explain TWO ways in which an economy might move from a point within its production possibility curve (PPC) to a point on it. [10] Discuss the most effective policies used to move the PPC outwards in Singapore. [15]
(b)
(a) (b)
Explain the causes of a persistent and large balance of payments deficit.
[10]
Discuss the view that the government should always adopt an exchange ratecentred monetary policy to focus primarily at reducing the balance of payments deficit. [15]
Copyright Acknowledgements Question 1 Extract 1 Question 1 Table 1 Question 1 Table 2 Question 1 Extract 2 & 3 Singapore Tourism Board, https://app.stb.gov.sg/asp/abo/abo08.asp Singapore Tourism Board , https://app.stb.gov.sg/asp/abo/abo08.asp Source: Yearbook of Statistics 2010, Singapore Department of Statistics, www.singstat.gov.sg F1 to generate $100m tourism receipts, Singapore Tourism Board website, extracted 23 August 2010, https://www.stbpassport.com/boardroom_jun_s4.aspx ; and New targets and key challenges for 2007 ,Tourism Board website, extracted 23 August 2010, https://www.stbpassport.com/boardroom_mar_s1.aspx Telegraph, 24 Apr 2008 Asia Times, 6 Nov 2008 Asia Times, 17 Dec 2008, The Economist, 19 Feb 2009, and The Straits Times, 16 Jan 2009 Halifax; and Urban Redevelopment Authority, Singapore United Nations Statistics Division Singapore Department of Statistics, http://www.singstat.gov.sg/ ; and UK National Statistics, http://www.statistics.gov.uk
Question 2 Extract 4 Question 2 Extract 5 Question 2 Extract 6 Question 2 Figure 1 Question 2 Table 3 Question 2 Table 4
PJC H1 Prelim 2010
1 RAFFLES INSTITUTION 2010 YEAR 6 PRELIMINARY EXAMINATIONS Higher 1
ECONOMICS
Paper 1
8819/01
Answer Paper
READ THESE INSTRUCTIONS FIRST DO NOT open this booklet until you are told to do so.
Write your name, index number and CT class on all the work you hand in. Write in dark blue or black pen on both sides of the paper. You may use a soft pencil for diagrams, graphs or rough working. Do not use paper clips, highlighters, glue or correction fluid. Section A Answer all questions. Section B Answer one question. Start each question on a fresh sheet of paper. The number of marks is given in brackets [ ] at the end of each question or part question. At the end of the examination, fasten all your work securely together with the cover page provided for your answer script.
RI (Year 6) 2010
8819/Prelim/Year 6/10
[Turn over
2 Section A Answer all questions in this section. Question 1 Transportation in Singapore

Table 1: Rider-ship Changes 1997 hanges 1997-2008 Table 2: Vehicle Population / Road Development
PV: Private Transport Source: HITS 2008 PT: Public Transport HITS: Household Interview Survey, Singapore
Source: HITS 2008
Table 3: Income Level and Mode of Transport
Source: HITS 2008
Table 4: Average speed: Expressways and Arterial Roads
[Turn over
RI (Year 6) 2010 8819/Prelim/Year 6/10
3
Extract 1: Rider-ship Changes Singapores population had grown from 3.8 million to 4.8 million between 1997 and 2008, a 26 percent increase. Economic activity also grew tremendously during the period and more significantly, Singapores real GDP per capita grew by 33 percent between 1997 and 2008, matching the growth rates in trips. It was also observed that the daily private vehicle trips had grown much faster than public transport trips. This resulted in the daily public transport mode share dropping consistently for the past decade, from 63 percent in 1997 to 58 percent in 2004, and even lower to 56 percent in the 2008 survey. In the Land Transport Master Plan, the Government announced that it will continue its commitment on public transport networks by doubling the existing 138 km of rail network to 278 km. This will increase the Rapid Transit System density from 31 km per million population today to 51 km per million population, comparable to cities like New York and London
Source: HITS 2008
Extract 2: Sustainable Transport Policy in Singapore Singapore has enjoyed rapid economic growth and intensive urbanisation over the last few decades and this has translated into an increase in travel demand. To support the increased travel demand, the Singapore government has over the years planned and put many measures in place to ensure that our transport system is adequate, sustainable and relevant. Our overall land transport strategy hinges on several key areas namely: 1. Provide a quality public transport system - Providing an attractive public transport system so as to encourage people not to use their cars for work trips but instead travel by public transport. 2. Developing a comprehensive road network - To serve the increased travel demand arising from economic development, new roads have been built while existing roads widened over the years. 3. Maximising its capacity and managing demand of road usage through ownership and usage measures. i) The restraint of vehicle ownership is managed mainly through the restriction on the actual growth of the car population. The Vehicle Quota System system provides an effective mechanism to regulate the growth of the vehicle population to 3%, recently revised to 1.5%. This licence is called the Certificate of Entitlement (COE) which is valid for 10 years and is awarded through tender. ii) The other aspect of demand management is the restraint of vehicle usage through levying a charge on motorists based on the quantity, place or time of the use of their vehicles. Generally, the more one uses his car the more one has to pay. The introduction of the ERP (Electronic Road Pricing) revolutionised our concept of road pricing and Singapores usage restraint strategy move into the era of congestion pricing. The objective of the ERP scheme is to charge vehicles for the use of the road at places and at times where and when they cause congestion.
RI (Year 6) 2010
[Turn over
In tandem with road pricing, we have also introduced other usage restraint measures. One such measure is the Off-Peak Car Scheme (OPC). The OPC Scheme offers all existing car owners as well as new car buyers another option to own cars at lower costs, if they are prepared to use their cars sparingly such as during off peak hours, thus relieving the usage during peak periods.
Source: LTA Singapore, 2008
Extract 3: Review of Transport Policy Land in Singapore is scarce and building more roads is not a sustainable approach to managing traffic congestion. Over the ten years, it is observed that the peak of the morning peak had shifted earlier by an hour, and correspondingly the morning peak period had lengthened. The change could be partially due to the effect of the electronic road pricing (ERP) system. Its primary objective is to make road users more aware of the true cost of driving and the impact to traffic conditions if they choose to drive. With road pricing, road users are more likely to make conscious decisions about the need to drive, the time to make the trip and the route to take. One of the behavior changes implied by the shift in the peak hour is that some drivers had begun to leave home earlier to avoid paying the ERP charges. From the HITS results, we can see the effectiveness of the ERP. Firstly, city-bound traffic (private vehicles going into the restricted zones) grew only 15 percent compared to the island-wide vehicular journeys which grew 25 percent between 2004 and 2008. This suggests that traffic demand had been suppressed for areas that were priced by the ERP. Secondly, the trip distribution had also started to widen in the morning peak hours because of the imposition of the ERP and other policy changes. Therefore, the ERP has been effective in managing travel demand and ensuring better use of limited road resources.
Source: LTA Singapore, 2008
RI (Year 6) 2010
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5
Questions (a) (i) (ii) (iii) ((b) (c) With reference to Table 1, describe the change in total daily rider-ship from 1997 to 2008 Compare the change in rider-ship of private transport to that of public transport. Using an appropriate diagram, analyse the changes in public transport daily rider-ship as well as its market share.
[2] [2] [6] [4] [2]
With reference to Table 3, identify and explain possible relationships between income levels and the different types of public transport mode. (i) (ii) With reference to Table 4, describe the changes of expressways and arterial roads average speed between 2007 and 2008. Its (ERP) primary objective is to make road users more aware of the true cost of driving. Explain the economic principle behind the need for ERP and how it is able to achieve its objective.
[6] [8]
(d)
Discuss how the implementation of other policies, apart from Electronic Road Pricing, has enabled Singapore to achieve a sustainable transport policy.
Total 30 marks
RI (Year 6) 2010
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Question 2: Foreign Investments
Figure 1: Investment
Source: Department of Statistics
Figure 2: Singapores Trade Performance in Real Terms :
Source: Department of Statistics
RI (Year 6) 2010
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7
Extract 4: The World's Coming to Singapore We are not just getting more large investments, but more "first-of-its-kind" investments. Take for instance, the chip used in the latest PlayStation3 and Xbox. A French semiconductor company, Soitec, is investing $700 million to set up in Singapore its first offshore facility to make the wafer for this chip.It is high precision, high technology. The wafers involve alternating layers of silicon and insulator, unlike conventional wafers which use silicon throughout. Soitec is coming here to set up their first manufacturing campus outside of France because, like many other global companies which have come here, they know their investments will be protected, and we have the pool of talent and skills for sophisticated manufacturing. Another example, Sumitomo, expanded its $500 million complex in Singapore last year to make the special kind of plastic used in LCD screens and dentures. These are big votes of confidence by global investors. But it is not just MNCs (multinational corporations) that we are drawing here with our low tax rates, reduced barriers, efficient infrastructure, efficient government and cosmopolitan living environment. We are also attracting a whole new category of small and mid-sized global players. Procter and Gamble (P&G), which produces items from Pantene shampoo to Gillette razors for 3.5 billion people more than half of the world, opened a plant here in 2007 to make scents for products like shampoo. He is optimistic that P&G will have another factory in Singapore within the next few years, although he adds the caveat that "if it makes financial sense". "Singapore is a very expensive place. The kinds of things we would put here are those with lots of technology involved, where you need a highly educated workforce, a disciplined workforce. Or one where you need the geography because you are so close to the market," he says. Singapore is already home to more than 7,000 foreign companies and its reliance on them is growing. Foreign companies accounted for $15 billion, or 85 per cent of the total fixed asset investment commitments in 2007. Ten years before that, it was about 62 per cent. Over the same period, the share of gross domestic product (GDP) of foreigners and foreign companies has risen from 34 per cent to 44.5 per cent.
Source The Straits Times Jun 2009
Extract 5: Buy Chinese In China, foreign technology companies are not the only ones facing regulations that favour products made in the country. Beijing has been quietly pushing local governments and ministries to "Buy Chinese", especially after the global recession in late 2008. In May last year, the Chinese government said preference ought to be given to domestic products when spending the 4 trillion yuan (S$824 billion) stimulus.
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RI (Year 6) 2010 8819/Prelim/Year 6/10
8
The latest protectionist measure against foreign technology firms came in November last year, requiring products and technology used by Chinese government agencies to contain intellectual property developed and owned locally. US businesses have accused Beijing of favouring "national champions" a likely reference to Chinese giants such as search engine Baidu and computer maker Lenovo. Other high-tech industries have had to navigate similar restrictions in China as the country seeks a short cut to acquiring foreign technology. For example, Chinas indigenous innovation programmes will shut out the worlds third largest market to foreigner companies unless they create Chinese brands and transfer the research and development of new products to China. Also, in the automobile industry, government regulations require any foreign investor to form a joint venture with a local company.
Source The Straits Times Jan 2010
Extract 6: China Must Fire Up Consumption The world now waits to see if Chinas impressive domestic demand growth last year can be sustained. The Chinese consumer has been held back for too long, and now must be put front and centre in Chinas growth model. Chinas government is already moving ahead on multiple fronts to attain this goal. Of the many factors that have decreased the share of consumption in Chinas economy, declining household disposable income has been central. That, in turn, has reflected the fall of labour income as a share of the economy, owing in part to structural changes that have moved workers out of agriculture (where the labour share of income is high) into manufacturing (where capital commands a larger share). This fall in income has been magnified by rising household savings rates, driven by insufficient insurance for health care and old age, the high cost of education, growing income inequality and demographic trends. To solve the above, changes including improving the system of taxation and social insurance, further developing housing and the service economy, and eliminating a range of relative price distortions are needed. One key idea was to lighten the tax burden on labour. Taking into account the personal income tax and various social contributions, taxation of labour income in China is too high. China could usefully explore shifting part of the burden from labour towards property, capital gains and inheritance taxes. Larger dividends paid to the budget from the highly profitable state enterprise sector could also provide an alternative source of funds. Another route to improve consumption could be to push ahead with social reforms. Steps have been taken over the past year to expand the pension systems coverage, move towards universal health care and provide public funding for basic education. The expanded government provision of social insurance should weaken the incentives for precautionary saving. Fostering a dynamic service economy will boost consumption as well. In the coming years, a fully fledged service economy will be an essential ingredient to increase employment and lessen Chinas reliance on manufacturing. Entry barriers, particularly in service industries dominated by state-owned oligopolies, need to be lowered. Distortions in prices that favour capital-intensive manufacturing need to be removed. This would also create an incentive for companies to expand into services, like banking, insurance, tourism, education, telecommunications and medical services, providing more jobs and choices for Chinese consumers.
Source: The Straits Times Mar 2010 RI (Year 6) 2010 8819/Prelim/Year 6/10
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Questions (a) (i) Using Figure 1, compare the trend of Foreign Direct Investment in Singapore and Singapores Direct Investment abroad between 2004 and 2008 With reference to Figure 1 and Figure 2, assess the likely BOP position of Singapore between 2004 and 2008.
[2]
(ii) ((b) (c)
[6] [6]
Discuss whether Chinas protectionist measures in Extract 5 can be justified in terms of economic theory. Compare how the different attitudes of Singapore and China towards foreign investment may have an impact on their economic growth, using both the case study and your own relevant knowledge.
[6]
(d)
Assess whether attempts by the government to fire up household consumption is desirable and effective for China to achieve a higher current [10] and future standard of living. Total 30 marks
RI (Year 6) 2010
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10
Section B Answer one question from this section. 3 Cancer is the number-one killer in Singapore. Through regular screening, cancer can be detected early where treatment is generally more successful. (a) (b) Consider whether screening for cancer is likely to be a merit good or a public good. [10] It is better to subsidise such cancer screenings that to embark on costly health campaigns. Comment. [15] Explain and compare the effects of the 2008 global financial crisis on small and open countries like Singapore and big countries like Australia. [12] Discuss the best policy option that the Singapore government could adopt to reduce the adverse impact of the crisis. [13]
(a) (b)
Copyright Acknowledgements: Question 1 Table 1 Question 1 Table 2 Question 1 Table 3 Question 1 Table 4 Question 1 Extract 1 Question 1 Extract 2 Question1 Extract 3 Question 2 Figure 1 Question 2 Figure 2 Question 2 Extract 4 Question 2 Extract 5 Question 2 Extract 6 HITS 2008 HITS 2008 HITS 2008 LTA Singapore 2008 HITS 2008 LTA Singapore 2008 HITS 2008 Department of Statistics Department of Statistics The Straits Times, Jun 2009 The Straits Times, Jan 2010 The Straits times Mar 2010
RI (Year 6) 2010
RIVER VALLEY HIGH SCHOOL YEAR 6 Preliminary Year Examination in preparation for General Certificate of Education Advanced Level Higher 1
ECONOMICS
Paper 1
8819/01
Answer Paper
READ THESE INSTRUCTIONS FIRST Write your index number and name on all the work you hand in. Write in dark blue or black pen on both sides of the paper. You may use a soft pencil for any diagrams, graphs or rough working. Do not use staples, paper clips, highlighters, glue or correction fluid. Section A Answer all questions. Section B Answer one question. At the end of the examination, hand in your work for Section A and B separately. The number of marks is given in brackets [ ] at the end of each question or part question.
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2 Section A Answer all questions in this section.
Question 1
Property Bubble Figure 1: Worldwide House Price Change, Annual (%)
Source: Urban Redevelopment Authority Figure 2: Singapores GDP Growth (%)
Source: Singapore Department of Statistics
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3 Extract 1: Massive Recovery in Singapore Prompts Housing Bubble Fears After residential property prices in Singapore surged 15.75% in Q3 2009, the government warned against speculation and the formation of a property bubble. In September 2009, the government imposed policies to cool the housing market, including measures that make it more difficult for households to delay mortgage payments. We do want to manage the property cycle as best we can, prevent boom and bust, said Finance Minister Tharman Shanmugaratnam, while admitting that it is difficult to predict the property needs of the city-state in advance. The Monetary Authority of Singapore (MAS) in its Financial Stability Report highlighted that sub-sale transactions as a share of all transactions, a proxy for speculative activities, averaged 11% over Q2 and Q3 2009, closed to the 13% average seen during the buoyant market in 2007-2008. Property watchers believe a higher supply of new Build-To-Order flats for 2011 will help take some heat off the resale market. The Housing and Development Board has announced her preparation to launch 16,000 new flats next year. This move is in line with the major goal of Singapores government to promote home ownership which has increased from 27% in 1970 to its present home ownership rate of around 91%. While some argued that this will allay concerns that prices are climbing too fast, others felt that the increased supply of flats may not have a very big impact as the groups of buyers who buy brand new flats and resale flats are different. Source: Global Property Guide, November 2009
Extract 2: China Reins in Its Rapid Growth Chinas economy has slowed from its blistering growth earlier this year after the government took measures to ward off inflation and rein in a runaway property market. The countrys gross domestic product rose 10.3% in the second quarter of 2010, compared with an increase of 11.9% during the first quarter. At the same time, inflation slowed to 2.9% in June, down from 3.1% in May and below the governments official target of 3%, according to the National Bureau of Statistics. Record lending last year was a crucial part of the governments efforts to stimulate the economy. This year, China repeatedly tightened reserve requirements for banks. Chinese banks reported a sharp drop in loans in the first half of the year. The government also imposed certain restrictions on property buying. The measures include more restrictive down-payment requirements, a ban on lending for third home purchases and tighter scrutiny of developers financing. June data suggest the market may be starting to cool. Average property prices in 70 cities declined 0.1% compared with the months before, the first drop since February 2009, according to China analysts for UBS Securities. Source: The New York Times, July 2010
RVHS 2010
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4 Extract 3: Deconstructing Chinas Property Market: Whats behind the bubbles? A year ago, as the global economic slowdown began to drag down Chinas growth, the government rolled out measures to stimulate the domestic property market, which accounts for around one-third of fixed-asset spending in the country. Interest rate cuts and lower deposit requirements were among the measures introduced. In response, those Chinese who could afford it have gone on a house-buying spree. What is behind the staggering growth? A massive burst of liquidity is responsible for the short-term trend, say observers. But the soaring prices are the result of the monopolistic way public land is auctioned. Land in China is sold by the local governments, which rely heavily on the proceeds to meet their funding needs. This means local governments have a vested interest in restricting the supply of land available to developers and hoping that prices stay high. The Shanghai residential developer says that developers payments to the government add between 60% and 65% to the price of a property. If this and various economic imbalances are not addressed, theres growing concern about the impact that the property frenzy could have on Chinas economy and social fabric. Development firms and Chinese banks might teeter and construction could slow down, tossing millions of Chinese people out of work. A real estate bust might also shake confidence here just when the world is looking to Chinese consumers to start spending more to bring global trade into better balance. One of the risks of the property bubble is that a vicious circle is created, one of inflation fears followed by rising property prices. Zhou of E-House says excessive liquidity in the system is fostering inflation fears. Consumers tend to head to the property market to hedge inflation risk, while their herd mentality pushes up asset prices further and so the circle continues. But Ye Hang, an economics professor at Zhejiang University in Hangzhou, who concurs that rapid growth in Chinas property sector could bring inflationary challenges, commented that government short term policy decisions made could determine whether the challenges will crop up in three to five years time. Experts say that beyond siphoning capital from the real economy, which is evidently seen even in small and mid-sized enterprises that are flushed with cash, went into the property market. Ballooning property prices, which increase the cost of living in the city, also eventually push up property prices in neighbouring areas. As migrants from other parts of China flow in to the big cities, the government will have to improve care for the low-income population, and build housing system for them. Zhou at E-House agrees the property market boom is intensifying a number of issues facing local governments, especially in tier-one cities such as Beijing and Shanghai. In the long run, China has a lengthy to-do-list which includes launching a high-end property tax to curb speculation, reforming the market structure and land system and offering a better social housing system. But others felt that while property prices are soaring in tier-one cities, price increases are more modest elsewhere. Government statistics say housing prices nationwide rose only 5.7% last year. In fact, the real estate melt down take years to come as Chinese banks exposure to real estate is less than 20% of assets, much smaller than in the United States. Source: The Washington Post, January 2010 and Knowledge Wharton, December 2009
RVHS 2010
8819
5 Questions (a) (i) (ii) Using Figure 1 and Figure 2, explain the relationship between GDP and house prices between 2007 and 2009. In the light of Extract 1, account for the significant change in house prices in 2009.
[2] [4]
(b) Using demand and supply analysis, explain the likely impact of the increased supply of new HDB flats on both the resale and private residential market. (c) Explain how market failure could arise should the Singapore government fail to promote home ownership. (d) Discuss whether tightening reserve requirements for banks and restricting down-payment requirements are the best measures to cool the property market in China. (e) Discuss the likely impact of the rising property prices on the Chinese economy.
[4]
[4]
[6] [10]
[30 marks]
RVHS 2010
8819
[Turn Over
Question 2
Weathering the Economic Crisis
Extract 4: Singapore officially in recession Singapore officially slid into recession today, the first in East Asia to be hit by a global economic slowdown, prompting the central bank to end a policy favouring gains in its currency in an effort to support the economy. The economy contracted by 6.3% in the third quarter, having shrunk by 5.7% in the second quarter of 2008. This forced the government to cut its growth forecast for this year from 4%-5% to 3%. Prime Minister Lee Hsien Loong said Asian economies faced slowing growth for at least the next year and will not be spared in this global crisis. Source: The Guardian,10 Oct 2008 Extract 5: Singapores Resilience Package Singapore has unveiled a massive S$20.5 billion (US$14.5 billion) plan in its 2009 Budget. The multi-billon dollar plan, called the Resilience Package, will go into five main areas. Included in this package are two extraordinary measures. They are the Jobs Credit and a Special Risk-Sharing Initiative (SRI). Under the Job Credit Scheme, the government will help employers, with their wage bills by giving a cash grant for each employee on the CPF payroll. As for the SRI, it includes a Bridging Loan Programme to help firms to improve their access to working capital and a trade finance scheme to help firms obtain loans to fulfil their orders. Source: Channelnewsasia.com, 22 January 2009 Extract 6: Chinas Stimulus package On November 9, China's State Council announced its long-awaited stimulus package. The body, the central government's cabinet, said it would spend an "estimated" 4 trillion Yuan, about US$586 billion, over the next two years on 10 major areas. In addition, it will loosen credit and reduce taxation. This influx of government funding would help bring about an additional $59 billion in private investment. Chinese state media called the plan "a wide-ranging effort to offset adverse global economic conditions by boosting domestic demand." The real question is whether it will have a lasting effect at home. The Chinese economy, the fastest growing in the world this decade, is now spiralling downward. Last year, gross domestic product jumped 11.9%, according to Beijing's official numbers. This quarter, growth is expected to clock in at about 5.8%. In late July, the Politburo officially reversed course from fighting persistent inflation to lifting growth. Since then, China's technocrats have, among other things, provided tax rebates, handed out incentives for home purchases and cut interest rates three times in six weeks. Nothing, however, has seemed to work. Pessimistic forecasts have apparently unnerved China's policymakers, thereby causing them to endorse the aggressive plan to stop the slide in growth. The just announced program is much bigger than what foreign analysts had expected. Yet it may not have the intended effect. Source: Forbes.com, 11 Nov 2008
RVHS 2010
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Extract 7: Signals from the sudden announcement The sudden announcement of the package, without the inconvenience of having to win approval by anything as inconvenient as a Congress, points to a number of things we can expect from China in 2009 and beyond. First, China has the money and capacity to mobilise resources quickly to stimulate growth. It is likely to be an important part of the solution to what looks to be a global recession. Second, and less reassuringly, Chinas dramatic action suggests that the countrys leaders are seriously worried about the extent of the economic slowdown. There had a mesmerising predictability in recent years to Chinas double-digit growth rates. But China needs very fast growth both to generate jobs in the short term and, for the longer term, to ensure that China builds a solid basis for wealth before it starts to suffer the ageing effects of its one-child policy. Source: The Economist, 12 Nov 2008
Table 1: Economic Data of Selected East Asian Economies, 2008 GDP US$ billions 4327 216 4911 221 182 Exports Imports (% of GDP) 37.8 33.2 212.3 201.5 17.4 17.3 103.6 80.5 234.3 215.3
China Hong Kong SAR Japan Malaysia Singapore
Source: 2009 International Trade Statistics Yearbook Table 2: Latest IMF Projections of selected economies (Year over year percent change) Economies United States Euro area Japan China 2007 2.0 2.6 2.1 10.0 Projections 2008 2009 1.4 -0.3 1.2 -0.7 0.5 -0.2 8.3 7.1 Source: IMF Economic Outlook, Nov 2008
RVHS 2010
8819
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9 Table 3: Details on the Singapores Resilience Package Purpose Job Credit Scheme (S$4.5 billion) Expand Recruitment across ministries and statutory boards Stimulate bank lending through Special Risk-Sharing Initiative (SRI) Cut in corporate tax to 17% Property tax rebates for commercial properties Rebates on HDB services and conservancy charges and rentals, personal income tax rebates, public assistance scheme Infrastructure Total Allocation $5.1 billion (26.8%) $5.8 billion (28.3%) $2.6 billion (12.6%) S$2.6 billion (12.6%) $4.4 billion (21.5%) $20.5 billion Source: The Straits Times, 22 January 2008
Questions (a) (i) (ii) What is meant by recession? With reference to the data where appropriate, explain why Singapore was the first East Asian economy to fall into a recession from the global economic crisis. [1] [6]
(b)
(i) (ii)
Compare the size of the stimulus package of China and Singapore. Account for the differences that you have observed.
[2] [5]
(c)
Discuss whether the influx of government funding would bring about an additional $59 billion in private investment as specified in Extract 6.
[8]
(d)
Evaluate the choice of the top macroeconomic aim of the stimulus packages unveiled by the Singapore and China government.
[8]
[30 marks]
RVHS 2010
8819
9 Section B Answer one question from this section. 1 (a) Explain why some goods and services are not optimally produced and consumed at the market place. To what extend government intervention ensures a more optimal resource allocation? [10]
(b)
[15]
Globalization is often regarded to be a double-edged sword. (a) (b) Explain the relevance of this statement to Singapore. Discuss whether the Singapore government currently adopts appropriate policies to overcome the two most harmful effects of globalization. [10]
[15]
RVHS 2010
8819
RVHS 2010
8819
ST ANDREWS JUNIOR COLLEGE PRELIMINARY EXAMINATIONS 2010 General Certificate of Education Advanced Level Higher 1
ECONOMICS
Paper 1
8819/01
13 Sep 2010 3 hours
Answer Paper
Write your name and class on all the work you hand in. Write in dark blue or black pen on both sides of the paper. You may use a soft pencil for any diagrams, graphs or rough working. Do not use staples, paper clips, highlighters, glue or correction fluid. Section A Answer all questions. Section B Answer one question.
At the end of the examination, fasten all your work securely together. The number of marks is given in brackets [ ] at the end of each question or part question.

SAJC 2010
[Turn Over
Section A Answer all questions in this section. Question 1 Gold and India Extract 1: Store of Value In a typical year India soaks up perhaps a quarter of all the gold mined in the world. Now, however, not only are people not buying, more and more of them want to swap their gold jewellery for cash. The seemingly insatiable demand of mainly Western investors, drawn to gold as a store of value rather than as an adornment, has driven the price from less than $700 an ounce in 2007 to more than $1,200 since May this year. The appetite for gold arises partly from the low, uncertain returns from more conventional investments. Golds main drawback is that it pays neither a dividend, like a share, nor a coupon, like a bond, nor a rent, like property. But monetary policy has been keeping official interest rates, and thus the opportunity cost of holding gold, low and seems set to do so for a while. At the same time, the looseness of monetary policy has made many investors fear the eventual resurgence of inflation. As jewellery demand went down, investment demand went up: for gold in the form of coins or bars, for gold exchange-traded funds (ETFs) and for the services of online companies that allow investors to buy small amounts of pure gold bullion, stored in underground vaults. Total demand in 2009 was the highest since at least 2000. Adrian Ash, head of research at BullionVault, reports that business is booming. In the first half of May the crisis in the euro area was uppermost. Worries that the burden of some countries sovereign debt might lead to a collapse in the euro were stemmed only by the extraordinary measures taken by the European Union, the IMF and the European Central Bank (ECB). 41% of BullionVaults new customer deposits came from eurozone banks, about twice the average since January 2009. On the supply side, the main source of new goldwhat is dug out of the worlds goldmineshas been flat or declining. Mine production peaked in 2001 at 2,646 tonnes and has been a little less than that ever since. A combination of rising production and exploration costs, dwindling output from long-established mines in North America and South Africa, and political and economic instability in other parts of Africa means that mine supplies cannot be ramped up at will. Another potential source of supply is sitting in the vaults of central banks. In June national central banks, the ECB and the IMF held more than 30,000 tonnes in all. On average, they sold 520 tonnes a year between 2000 and 2007. Last year the flow of central-bank gold almost dried up, even as the price soared. The third main source of supply is scrap: jewellery sold to dealers for the value of the metal. As the price has climbed steeply, record quantities have been sold for scrap1,674 tonnes last year.
Adapted from www.economist.com, 8 July 2010
Extract 2: Is Indias high growth sustainable?

SAJC 2010 8819/01/PRELIM
The better than expected performance of Indian economy in the last few quarters had a lot to do with a significant fiscal stimulus and loose monetary policy. In fact, two stimulus packages providing tax cuts and increasing infrastructure spending in connection with lower interest rates have supported significantly domestic demand. Yet, with demand growing at a faster pace than supply, inflation is becoming a growing concern. Not surprising, the Reserve Bank of India has raised its benchmark interest rates twice to 3.75%. Tightening too much or too early is likely to squeeze credit availability and affect growth which is essential in keeping fiscal deficit at sustainable levels. Looking further, stimulus spending had expanded fiscal deficit from 2.6% of GDP in 2007/08 to 10% in 2009/10. And despite strong growth numbers, the deficit is not sustainable, Indian government should be able to better control its expenditure. In fact, while Union Budget for 2011 increases infrastructure spending and raises taxes for petroleum products, it fails to slash inefficient subsidies on fertilizer and food to the producers. More importantly, the new administration is slow in implementing economic reforms promised to investors after last year's wider-than-expected election victory. The government has made progress in new tax laws, disinvesting state run companies and it formed an expert panel to encourage foreign investment in the financial sector. Yet, labour reforms and removal of government subsidies on farm products are far from being executed.
Adapted from www.tradingeconomics.com, 2 June 2010
Table 1: Indias Selected Statistics, 2006-2009 Indicator % change in GDP at constant prices % change in population % of Households with access to internet Rural Infant mortality rate (000) Urban All 2006 9.7 1.5 60 2007 9.0 1.4 64 64 40 58 2008 6.7 1.4 67 62 39 57 2009 8.6 1.2* 61 37 53
Sources: Organisation for Economic Co-operation and Development, 2010 Asian Development Bank, 2010 * denotes estimates - denotes unavailability of data
SAJC 2010
8819/01/PRELIM
Questions (a) (i) With reference to Extract 1, explain what is meant by the opportunity cost of holding gold. [2]
(ii)
With reference to Extract 1, describe how the demand and consumption pattern for gold have changed between 2000 and 2009. [2]
(iii) Explain how the concept of price elasticity of supply helps to explain the impact on the market for gold given an increase in demand. [4] (iv) In the light of Extract 1 and using demand and supply analysis, account for the rise in the price of gold. [6] (b) To what extent can it be concluded from the data given that the standard of living in India has improved between 2006 and 2009? [6] (c) Discuss whether the Indian policymakers should change its policies to ensure sustainable economic growth in India. [10] [Total: 30 marks]
SAJC 2010
8819/01/PRELIM
Question 2 Who can help America? Extract 3: Credit crisis in America As the 2008 global financial crisis continues to unveil itself, leading OECD 1 economies were already on a united dive into recession, driven by simultaneous collapse in consumer and business spending and the rising threat of job losses and bankruptcies. The US unemployment rates hit 6.1% and the industrial production output level fell to 1.1%, its largest decline in the past three years. Because of the critical role banks play in the current market system, when the larger banks show signs of crisis, it is not just the wealthy that suffer, but potentially everyone. With a globalised system, a credit crunch can ripple through the entire economy very quickly turning a global financial crisis into a global economic crisis. For example, an entire banking system that lacks confidence in lending as it faces massive losses will try to shore up reserves and may reduce access to credit or make it more difficult and expensive to obtain. In the wider economy, this credit crunch and higher costs of borrowing will affect many sectors, thus leading to job cuts. For any recent home buyers, the value of their homes is likely to fall in value. As people cut back on consumption to try and weather this economic storm, more businesses will struggle to survive, thus leading to further job losses.
Adapted from Globalissues.com, September 2008
Extract 4: Buy American clause Will it help? The 2008 global economic crisis provoked debate about whether individual states or trading blocs could insulate themselves from the international turmoil through protectionist economic measures. There is increasing doubt about free trade as US President Barack Obama has linked free trade with job losses and proposed tax breaks for US companies investing at home. The Senate this week is considering an $885 billion bill designed to help mend the ailing economy, which requires all "manufactured goods" purchased with stimulus money to be made in the United States. The House already has approved a narrower bill mandating the use of domestic iron and steel. To supporters, including labour unions, a "Buy American" requirement is just common sense at a time of economic crisis and rising unemployment. Factories have been retrenching workers for years; manufacturing employment is now 12.9 million, down from 17.2 million at the end of 2000. If Congress doesn't insist upon the use of U.S.made materials, taxpayer funds could line the pockets of European or Chinese workers rather than hard-hit Americans.
Organisation for Economic Co-operation and Development an international organization consisting of 32 countries committed to democracy and the market economy, providing a setting to compare policy experiences, seeking answers to common problems, identifying good practices, and co-ordinating domestic and international policies of its members.
SAJC 2010
8819/01/PRELIM
"There isn't a great deal of scope for doing much more, but if America went ahead and did this we would have to take it up with the World Trade Organization," the European Commission trade spokesman, Peter Power, told the BBC's Chris Mason in Brussels. American needs to face up to the fact that it is not as competitive as before and something needs to be done. Protectionism is not the way to go, he adds. European and Canadian ambassadors to Washington have already warned that the clause could provoke protectionism and trigger retaliatory moves. In addition, the slow growth pace reinforced views that the US Federal Reserve would keep overnight interest rates near zero until the second half of next year.
Adapted from USA Today, April 2009
Figure 1: Americas Unemployment Rates (In % of labour force)
Source: www.tradingeconomics.com, 2010
SAJC 2010
8819/01/PRELIM
Figure 2: Americas Current Account Balance (In USD, bn)
Source: www.tradingeconomics.com, 2010
Questions (a) (i) With reference to Figure 2, describe the trend of US current account balance between 2008 and 2010. [2]
(ii)
To what extent are Figure 1 and 2 adequate for you to conclude about the plight of Americas economy between 2008 and 2010? [4]
(b) (i) (ii)
Define protectionism.
[1]
Explain how the Buy American clause may not be in line with economic analysis and show the implication of this clause on the allocation of resources in USA. [5]
(iii) How far do you agree with President Obamas stand that free trade is the cause of job losses in America? [8] (c) Would you consider continued openness (globalisation) or protectionism to be a better solution to help America come out of the economic crisis and why? [10] [Total: 30 marks]
SAJC 2010
8819/01/PRELIM
Section B Answer one question from this section. 3 The Singapore government actively promotes research and development (R&D) by firms through tax deductions or grants, such as the Productivity and Innovation Credit introduced in the 2010 Budget. (a) Consider whether scientific knowledge derived from R&D is a public good and explain why the government needs to intervene in the private market to promote investment into R&D by firms. [10] Evaluate market-based and non-market-based solutions to correct market failure associated with externalities in production. [15]
(b)
The process of economic integration has occurred since the earliest times. However, increasing globalisation is a recent phenomenon that is aided by the breaking down of not just trade, but legal barriers. (a) (b) Explain the factors which lead to increasing globalisation. [10]
Discuss the view that increasing globalisation improves Singapores balance of payments. [15]
~~ End ~~
SAJC 2010
8819/01/PRELIM
SERANGOON JUNIOR COLLEGE

JC2 Preliminary Examination
ECONOMICS Higher 1
PAPER 1
8819/01
20 August 2010 3 hours
Writing paper
READ THESE INSTRUCTIONS FIRST Write down your name and civics group on all the work you hand in. Write in dark blue or black pen. You may use a soft pencil for any diagrams, graphs or rough working. Do not use staples, paper clips, highlighters, glue or correction fluid. Sections A Answer all questions. Section B Answer one question. Start your answers to each case study question and essay question on a new sheet of writing paper. Fasten your answers to all three questions separately. The number of marks is given in brackets [ ] at the end of each question or part question. You are reminded of the need for good English and clear presentation in your answers.
2 Section A Answer all questions in this section. Question 1 Extract 1: Britain's green spaces under threat from water shortages and house prices Parts of the UK could face water shortages, rapidly rising house prices and threats to wildlife and landscapes if there are no major changes to how land is managed, a report warned today. The chief scientific adviser, Professor John Beddington, said sticking with "business as usual" management of land was not an option in the face of pressures such as climate change and population increases over the next 50 years. Land is also likely to come under pressure from an increasingly wealthy population to provide more living space and recreation, and the need to produce food and green energy from wind farms to fuels made from crops to meet targets on renewable energy. In the coming years, changes to the climate including warmer, wetter winters and hotter, drier summers will affect water supplies, increase flood risk and could damage wildlife and habitats such as ancient woodland. In the future, a failure to manage land could result in shortages of resources and public goods. The effects of climate change and new pressures on land could escalate, seriously eroding quality of life. Source: guardian.co.uk, 26 February 2010 Extract 2: The figures do add up It is silly to argue that environmental taxes cannot raise revenue and influence behaviour at the same time. Existing taxes do both. In economist-speak, as long as the price elasticity of demand is greater than zero and less than one, higher environmental taxes raise revenue and reduce the growth of emissions simultaneously. Source: Vince Cable, The Guardian, 13 June 2006 Extract 3: Foreign labour: Spain plans migrant crackdown as economy falters Grappling with rising unemployment, the Spanish government proposed new rules yesterday to limit the influx of immigrants. The measures would let police hold immigrants without papers for a longer period pending expulsion and make it harder for foreign-born residents to bring relatives over. A few years ago Spain was Europe's top job creator. But the economy is on the verge of recession and unemployment has soared to 11.3%. Among immigrants the jobless rate surpasses 17%. The labour minister, Celestino Corbacho, said the government must limit immigrants so as not to swell the ranks of the unemployed. Source: Associated Press, 20 December 2008
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3 Extract 4: Foreign labour: the Singapore experience The improvement in unemployment and the growth in Singaporeans' incomes that we saw in the last decade would not have been possible if we had prevented businesses from expanding quickly in the second half of the decade. The external environment was favourable, but the growth of businesses here would have been choked off if they had not been able to obtain more foreign workers. Bringing in foreign workers allowed businesses to seize opportunities, accept orders and grow, and create more jobs for Singaporeans. We cannot do away with foreign workers. If we had not brought them in, we would not have been able to ease the supply bottlenecks in the private property markets, build HDB flats or expand our MRT network. However, growing our dependence on foreign workers is not a sustainable strategy for the long term. It will reduce the incentive for employers to upgrade their operations and raise productivity. Source: Tharman Shanmugaratnam, The Straits Times, 6 March 2010 Figure 1: Resident1 Unemployment Rate and Foreign Share of Workforce
Sources: Department of Statistics and Ministry of Manpower, 2010 Extract 5: Japanese banks could receive $110bn bail-out Japan is reportedly planning an ambitious scheme to relieve the country's banks of trillions of yen in bad loans in a desperate attempt to breathe life back into its ailing economy. The report, which did not name its sources, comes soon after gloomy data predicted a troubled year ahead for the world's second biggest economy, which has already slid into recession and faces a period of deflation2 next year for the second time in a decade. Experts are predicting a third consecutive quarter of contraction amid warnings that consumer price inflation risks slipping into the negative next year, while unemployment is approaching levels not seen since the dark days of the 1990s. Exporters, including corporate powerhouses Sony and Toyota, have slashed output and cut staff as the soaring yen and weak demand damage sales around the world.
1 2
Citizens and Permanent Residents Deflation is defined as a period when there is a persistent fall in general price level.
4 In response to the crisis, the Bank of Japan has cut interest rates twice since the end of October most recently to 0.1% and moved to ease the pressure on corporate funding. The government, meanwhile, has unveiled 12 trillion yen in extra stimulus spending and a record 88.5 trillion yen budget for next year as the export-dependent economy feels the full force of the credit crisis unfolding in the US and Europe. Source: Justin McCurry, guardian.co.uk, 30 December 2008 Questions (a) (b) Explain how the concept of opportunity cost can be applied to land use in Britain. (i) (ii) [2]
Explain one negative externality that could arise from the failure to manage land. [2] With the aid of an appropriate diagram, analyse the impact of an environmental tax on government tax revenue and the level of emission. [5] [4]
(c) (d)
Using relevant examples, explain why the market fails to provide public goods. (i) (ii)
Using Figure 1, describe the relationship between the foreign share of labour and the resident unemployment rate. [1] Extracts 3 and 4 depict two countries attitudes towards foreign labour. Discuss the case for and against employing foreign labour. [6]
(e)
Assess the policies that were adopted by the Japanese government to deal with the problem of recession. [10] [Total: 30 marks]
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5 Question 2 Extract 6: Revaluation of yuan holds little promise The conventional wisdom among American policymakers and commentators regarding the huge US trade deficit with China is that the yuan must be revalued. But evidence of the past 2 years suggests a revaluation would have little impact on the deficit and would only hurt Chinese workers and small manufacturers. Conceding to earlier pressures, China changed its decade long policy of pegging the yuan to the US$ in July 2005. The yuan rose by more than 5% in the first year and after that by 12% in the second year. Yet the US trade deficit with China continued to swell and is expected to reach US$260b by the end of 2007. So the policy has failed to achieve its objective. In recent years, the US economy has undergone fundamental changes that have reduced the effectiveness of exchange rates in changing patterns of trade, particularly with countries like China. Revaluation of the yuan would have the desired effect only if the goods imported from China are produced in the US. But that is not the situation as there are few American substitutes. Chinese apparel, computer parts, electronics, furniture, toys and many products no longer compete with similar American made goods. If not from China, the US would have to buy them from elsewhere. So the deficit would remain, only it would be with other countries. The US trade deficit with China is structural in nature; largely caused by the aggressive globalisation of American businesses and their international repositioning since the 1980s. Taking advantage of Chinas vast supply of cheap labour and lack of market regulations, many American companies moved to China to set up branches. Purchases by American businesses from their affiliates in China continue to rise at a fast rate from 10% of total imports in 1992 to 24.5% in 2007. The deficit is also aggravated by the widespread use of subcontracting agreements between American companies like Mattel, Nike and thousands of manufacturers in China making semi- finished and finished goods for the US market. Since the subcontractors are paid in US dollars, the revaluation of the yuan leaves the American multinationals and their demand for Chinese products unaffected. Imports from China thus remain unchanged. Source: Adapted from The Straits Times, 20 January 2008 Extract 7: Globalisation: uncertainty amid creative destruction With rising unemployment and growing trade deficit, the US economy is heading south and trade is increasingly seen as the main culprit. Some Americans believe that international trade is taking away more jobs from the state than it is creating. The volatility of globalisation is a cause of growing anxiety among wage earners the world over. The days of lifetime employment are mostly over, contracts are growing shorter and the number of temp staff is rising. Since capital is increasingly mobile, investment is moving to countries where absolute returns are higher, regardless of consequences for immobile workers. Millions of US blue collar jobs have disappeared as factories moved to China and Southeast Asia. Relocation fattened the corporate bottom line as Western-designed, low priced made-inChina goods have invaded shopping malls. Low prices at Tesco and Wal-Mart helped middle
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6 class wage earners cope with their falling real income, but the uncertainty about the future continues to haunt workers. Economists argued that this creative destruction was an inevitable part of economic growth and innovation, which would in the end create new jobs and benefit society as a whole. But as China, India and other developing countries have brought in hundreds of millions of new workers into the global workforce, many western economists, who once championed globalisation, are no longer so sure of themselves. They fear that the industrial prowess of the emerging economies poses a serious challenge to the welfare of workers in the West. This backlash in turn, threatens the principle of free trade. Anti-globalisation produces a tariff war. Driven by interests, protectionism grew in Europe, followed by a beggar-thy-neighbour high tariff wall in the US. The desire to protect jobs by shutting down trade led to the Great Depression. Growing anti-globalisation sentiment is worrying. There is a need to find ways to make Americans more comfortable with globalisation. If trade is forced to shut down, the results could be disastrous for all. A debate is under way in the EU & US as to how workers who fall victim to creative destruction should be helped. Should governments come to the aid of companies which cannot cope with global competition? What should responsible governments do? Not close their doors to global trade, that is for sure. Instead the answer lies in governments stepping in to address those distortions. Otherwise, we will all be the poorer for it. Source: Adapted from The Straits Times, 12 August 2008 Table 1: Current Account Balance (US$ billion) 2004 2005 2006 2007 2008 -630 -748 -803 -718 -669 68.7 160.8 249.9 371.8 426.1
US China
2003 -521 45.9
Source: Bureau of Economic Analysis, US Department of Commence Table 2: US Economic Indicators Year 2003 2004 2005 Real GDP growth rate (%) 2.5 3.6 3.1 Trade balance (as a % of GDP) -4.6 -5.3 -5.8 Trade (as a % of GDP) 25.1 26.8 27.6 Personal consumption expenditure (% change) 2.8 3.5 3.4 Government consumption expenditure (% change) 2.2 1.4 0.3 Productivity (% change) -4.7 -1.4 -0.5
2006 2.7 -5.8 28.7 2.9 1.4 -0.6
2007 2.1 -5.0 NA 2.6 1.7 -1.7
2008 0.4 NA NA -0.2 3.1 -3.6
Source: Various
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7 Questions (a) (b) Explain what is meant by a revaluation of the yuan. (i) [1]
Explain how a revaluation of the yuan could affect the US current account balance with China. [2] With reference to Extract 6 and Table 1, discuss the extent to which the revaluation of the yuan has achieved its intended effect on the US current account balance with China. [5]
(ii)
(c)
With reference to Table 2, (i) (ii) Describe the trend of the US real GDP. Account for the change in the US real GDP in 2008. [2] [4]
(d)
Growing anti-globalisation sentiment is worrying. (Extract 7) Explain why this sentiment is worrying. [6]
(e)
Using both the case study and your own relevant knowledge, comment on the impact of globalisation on developing and developed countries. [10] [Total: 30 marks]
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8 Section B Answer one question from this section. 3 Beyond a certain level of road usage, traffic congestion increases and eventually it undermines the environment, quality of life and overall efficiency of the economy. (a) (b) Analyse how traffic congestion can lead to market failure. [10]
Evaluate the measures that could be taken by the government to solve the problem of market failure due to traffic congestion in your country. [15]
The US dollar may depreciate as a result of the faster economic growth in Asia. (a) (b) Explain the possible causes of a depreciation of a countrys currency. Discuss the possible impact of currency depreciation on an economy. [10] [15]
End of Paper
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VICTORIA JUNIOR COLLEGE 2010 JC2 PRELIMINARY EXAMINATION H1 ECONOMICS (REVISED) PAPER NO. 8819/01
17 September 2010 2:30 5:30 pm
READ THESE INSTRUCTIONS FIRST Write your name and class on all the work that you hand in. Write in dark blue or black pen. You may use a soft pencil for diagrams. Do not use staples, paper clips, glue or correction fluid on the work that you hand in.
Section A Answer all questions.
Section B Answer one question.
The number of marks is given in [ ] at the end of each question or part question.
Start each answer on a fresh sheet of writing paper. At the end of the examination, fasten your work securely, by question, using the strings provided.
_________________________________________________________________
Section A
Answer all questions in this section Question 1 Oil Price - A curse and a blessing
Chart 1: Oil Prices 2004-2008
Extract 1: Oil Demand Growth to Slow in 2008, 2009: OPEC

OPEC, the producer of two in every five barrels of oil, said on Tuesday that the need for its oil in 2009 would post the first significant decline since 2002 due to slower world demand and rising supply from non-member countries. In its first look at 2009 in the monthly report, OPEC said world consumption would rise by 500,000 bpd next year while supply from non-member countries would expand at a much faster rate of 940,000 bpd. This year, a drop in demand for fuels such as gasoline in the United States due to high prices and the slowing economy is expected to weigh on consumption, despite growth in China, India and the Middle East. Source: Reuters, 15 Jul 2008
Extract 2: Airline industry faces huge losses in 2009

The airline industry is facing its worst revenue environment in 50 years with revenues expected to decline by US$501 billion (around 339bn) in 2009, according to the International Air Transport Association (IATA). Both passenger traffic and yields are expected to decline by 3%. The past year has been the toughest for the airline industry since the aftermath of September 11. While plummeting oil prices have given the industry some relief, the global economic crisis has led to a dramatic drop in the number of people flying. A series of banking collapses have led to a sharp fall in demand for expensive business travel upon which many airlines depend. Meanwhile, budget airlines, such as Ryanair continue to expand their capacity with lean and mean cost-cutting and reduced fares. Source: The Economist, 13 Dec 2009
Extract 3: Airlines vow to halve carbon emissions by 2050

The aviation industry will tomorrow make a dramatic pledge to slash carbon dioxide emissions in half by 2050 in a move that will force up air fares and spark a green technology race among aircraft manufacturers. Airlines have been accused of dragging their heels over climate change, but the strategic shift reflects industry concerns that if it does not address its growing emissions, it could become a target at the global warming summit in Copenhagen in December. Aviation currently contributes 3.2% of all carbon emission. However, a government's advisory body warned that as the country builds more airports, and more airlines emerge to handle the increasing number of air travellers, aviation will account for as much as a quarter of all emissions in the developed world even if it caps 2050 emissions at 2005 levels. Source: The Guardian, 21 Sep 2009
Extract 4: Cap-and-Dividend to replace Cap-and-Trade

On January 28th, The USA formally pledged to the United Nations that it would reduce its greenhouse-gas emissions by 17% (from what they were in 2005) by 2020. Maria Cantwell, a junior senator, is pushing a simpler version of cap-and-trade, called cap-anddividend. Under her bill, the government would impose a ceiling on carbon emissions each year. Producers and importers of fossil fuels will have to buy permits. The permits would be auctioned, raising vast sums of money. Most of that money would be divided evenly among all Americans. While general price levels will undoubtedly rise, a family of four would receive perhaps $1000 a year, which would more than make up for it. And it would leave all but the richest 20% of Americanswho use the most energymaterially better off. The Senate is not likely to pass a comprehensive climate bill any time soon. Meanwhile, President Obama unveiled a plan devoting $150 billion over 10 years in the development of advanced energy technologies and the promotion of alternative sources of energy. With energy conservation as one its top priorities, the Obama Administration aims to boost energy efficiency and help Americans cut their energy bills. The Environmental Protection Agency, on the other hand, is trying to regulate greenhouse gases under existing laws. Under its Clean Air Act for example, the Agency has the authority to limit emissions of air pollutants coming from sources like chemical plants, utilities, and steel mills. But regulation is no substitute for putting a price on carbon, which would harness the power of the market to cut emissions more cheaply. Source: The Economist, 06 Feb 2010
Questions
(a) i) Using Chart 1, describe the trend of oil prices from 2004-2008. [2]
ii)
Based on Extract 1, explain the possible reasons for the trend of oil prices in the second half of 2008.
[5]
(b)
Using demand and supply concepts, explain how passenger traffic would change in 2009 with the help of a diagram.
[5]
(c)
i)
With reference to Extract 3, explain if there is a need for the government to intervene in the airline industry.
[8]
ii)
Assume that you are the Minister for the Environment of Singapore. [10] Taking into consideration the possible impact on the economy, justify which of the policies found in the extracts you would choose to curb carbon emission. Total: 30m
Question 2 The Chinese Economy Chart 2 Chart 3
Note: Headline exports to GDP ratio refers to official recorded exports figure whilst true exports ratio refers to value added share of manufactured exports.
Extract 5: An old Chinese myth

Most people suppose that China's economic success depends on exporting cheap goods to the rich world. If so, its growth would be seriously dented by a stuttering American economy. China's exports have surged from 20% of GDP in 2001 to almost 40% in 2007 after it joined the World Trade Organization in 2002. This seems to suggest that not only exports are the main driver of growth, but also that China's economy would be hit much harder by an American downturn than it was during the previous recession in 2001. If exports are measured correctly, however, they account for a surprisingly modest share of China's economic growth. The headline ratio of exports to GDP is very misleading. It compares apples and oranges: exports are measured as gross revenue while GDP is measured in valueadded terms. Although the headline exports-to-GDP ratio has almost doubled since 2000, the value-added share of exports in GDP has been surprisingly stable over the same period. This is explained by the rise in imported inputs arising from Chinas effort to see its economy move up the value chain from basic products to sophisticated manufacturing products. And even if the contribution from net exports fell to zero, China's GDP growth would still be close to 9% thanks to strong domestic demand. The boost from net exports is unlikely to vanish, even if America does sink into recession, because exports to other emerging economies, where demand is more robust, are bigger than those to America. According to Standard Chartered Bank, Asia and the Middle East accounted for more than 40% of China's export growth in the first ten months of 2007, North America for less than 10%.
Source: Adapted from The Economist, 3 Jan 2008
Extract 6: Can the worlds fastest-growing economy avoid a sharp downturn?

After growing by an annual average of over 10% over the past five years, Chinas economy has suddenly cooled more quickly than expected. That still sounds pretty impressive, but other indicators suggest weaker times ahead. Construction, steel demand, electricity consumption, car sales and air travel have all been falling in recent months. Industrial production grew by only 8.2% in the year to October, less than half its pace a year ago and its slowest for seven years. Share prices have slumped by 70% from their peak and house prices have started to drop. Property sales are running 40-50% lower than a year ago. Unsurprisingly, surveys show that consumer and business confidence is cracking. Chinas slowdown only partly reflects weaker exports as the world economy sags. Some of it is home-grown, caused by a deliberate tightening of monetary policy to curb inflation and an overheated property market. Indeed, export growth has held up surprisingly well. In the first ten months of this year, exports were 21% higher in dollar terms than a year ago, compared with growth of 26% in 2007. The eye-popping 4 trillion Yuan stimulus package unveiled by Chinas State Council this week is to be spent over the next two years. The total increase in spending, if genuine, would surely represent the biggest two-year stimulus (outside wartime) by any government in history. The package includes public works, social welfare and tax reform. The main spending areas are public housing for poor households; infrastructure projects such as railways, roads, airports and the power grid; speeding up rebuilding after the May earthquake; and increased spending on health and education. The government also plans to boost rural incomes by raising the minimum purchase price of grain as well as increasing subsidies for farmers, and promises plumper social-security benefits for low-income groups. Some commentators have criticized the package for focusing too much on investment (which is already high as a share of GDP in China) rather than spurring consumption through income-tax cuts. But in a country like China, where the saving rate is high and confidence is failing, infrastructure investment is much better at boosting growth. Source: Adapted from The Economist, 13 Nov 2008
Extract 7: Fears of Chinese economy overheating

China said consumer prices and bank lending accelerated in April, fuelling fears the economy may overheat and building pressure on Beijing to hike interest rates and let its currency rise. New loans issued by Chinese banks hit 774 billion yuan ($113.4 billion dollars) in April after falling to 510.7 billion yuan in March while property prices rose 12.8 per cent year-on-year in April, official data showed. "Currently, prices are rising quite fast but consumer price index (CPI) increases are mainly due to food and rent prices,'' a spokesman for the National Bureau of Statistics (NBS), Sheng Laiyun, said. "In the near term, prices are still under quite significant upward pressure. Total demand is still on the rise and domestic liquidity is still abundant.'' The CPI, the main gauge of inflation, rose a higher-than-expected 2.8 per cent compared with April last year, the NBS reported. The increase outpaced the 2.4 per cent jump in March but was still below the government's own inflation target of three per cent for the year. Mr Sheng insisted consumer price increases were still "relatively mild'' and it was still possible for Beijing to achieve its official target, but analysts expressed concern that the rises were too
fast. "China is at risk of overheating, with spot fires breaking out in various parts of the economy, most notably the property market and bank lending,'' said Brian Jackson, a senior analyst at Royal Bank of Canada in Hong Kong. Mr Jackson said higher interest rates and a moderate appreciation in the currency would help Beijing avoid inflationary pressures reaching "damaging levels''. Policymakers have also introduced a series of measures in recent weeks to rein in property prices. Among them are a tightening of restrictions nationwide on advance sales of new property developments, the introduction of new curbs on loans for third home purchases and the raising of minimum down-payments for second homes. A top government economist said at the weekend that the scope for a rise was small because economic growth likely peaked in the first quarter and rates in the United States and other countries remained relatively low. Source: Adapted from Heraldsun.com.au, 4 June 2010 Questions: (a) i) Compare the trend in Chinese headline exports-to-GDP ratio and the true export ratio between 1980 and 2006. [2]
ii)
Explain the possible reasons for the above trend in a(i)
[4]
(b)
With reference to Extract 5 and Chart 3, to what extent was the Chinese economy affected by the downturn in the American economy in 2008?
[6]
(c)
Discuss the impact of the huge stimulus package on the Chinese economy.
[10]
(d)
Comment on the effectiveness of the various economic measures mentioned in the extracts that can be used by the Chinese government to prevent the economy from overheating. Total:
[8]
30m
Section B
Answer one question from this section.
3. a) Using relevant examples, explain the concepts of a public good and a merit good b) Discuss whether direct provision is the most appropriate tool for your government to tackle market failure associated with both goods. [8]
[17]
4.
a) Explain the possible causes of a current account deficit. b) Discuss if the use of fiscal policy is the best option for the government of a small and open economy to correct such a deficit.
[10] [15]
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YISHUN JUNIOR COLLEGE

JC2 PRELIMINARY EXAMINATION 2010
H1 ECONOMICS
8819/01
26 August 2010
TIME: 3 hours
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Write your name and CTG on all the work you hand in. Write in dark blue or black pen on both sides of the paper. You may use a soft pencil for any diagrams, graphs or rough working. Do not use highlighters or correction fluid. There are 2 sections in this paper. Section A : Answer all questions. Section B : Answer one question. At the end of the examination, fasten all your work securely together and hand in Sections A and B separately. The number of marks is given in brackets [ ] at the end of each question or part question.
This paper consists of 8 printed pages
2 Section A Answer all questions in this section. Question 1 Figure 1: Annual House Price Change in Singapore
Annual House Price Change (%)
Year
Source: Urban Redevelopment Authority
Extract 1: Housing Market and the Economy The government implemented several policies in 2005 to boost the housing market. Some of these policies included:

The relaxation of foreign ownership rules on apartments An increase of the maximum loan-to-value ratio from 80% to 90% A reduction of cash down payments from 10% to 5% for home purchase
Singapore has experienced an influx of expatriates, and some foreigners have preferred to buy rather than face escalating rentals, especially if they are going to be in Singapore for more than a couple of years.
3 However, there were some concerns that without a substantial increase in the number of new and ready properties available for sale, and new projects taking at least 3 years to completion, the market could face a supply-bottleneck very soon. The boom in the housing market did not last long. In 2008, high global fuel and commodity prices resulted in inflationary pressures in the economy. The rise in inflation rate and the global financial crisis pushed house prices down. The layoffs that ensued have a significant impact on the economy. The rise in unemployment resulted in some people being unable to meet their mortgage repayments, causing home repossessions. The quick recovery in the economy and lower interest rates saw the housing market buoyant once again in 2009. While the fortunes of the housing market are linked to the performance of the economy, house prices can in turn have impact on the macro economy. Houses are the biggest form of wealth for most people and hence a change in house prices has a significant impact on consumer wealth and consumer confidence. Empirical evidence suggests that falling house prices often play an important role in contributing to economic recession.
Source: Adapted from http://www.globalpropertyguide.com/Asia/Singapore/Price-History, 24 November 2009
Extract 2: Do something drastic or do nothing? In the light of the recent growing frenzy in the residential property market in Singapore, there are two schools of thought, diametrically opposed, on what should be done. Would-be home buyers, especially first-timers, want the Government to 'Do Something Drastic' to control runaway prices. The other camp wants the Government to 'Do Nothing' about rising property prices. This point of view was best articulated by developer Simon Cheong, who argued that private property served just 16.5 per cent of the population and should be left free of government intervention. In other words, the state should keep its hands off, and developers should be able to price condo units as high as the market can accept.
4 The government has refused to treat housing as a free market. New Housing Board flat prices are not allowed to soar freely in tandem with a bullish market, but are priced with an eye on affordability and pegged to median income levels, ensuring the median income-earner can always afford a home. A Housing Board flat is not just a home; it is an important component of the social safety net and an asset which can be monetised for retirement or in bad times. (Rent out a room for $500 a month, say.) Pandering to those complaining of being priced out of the market, and 'Doing Something Drastic' to chill the housing market, will be a great disservice to existing home owners. Simple arithmetics tell us the issue of rising housing prices cannot be one that disgruntles the majority. The 30,000 young couples who set up home each year may be vexed, but the 900,000 who already own their homes are probably not. .
Source: The Straits Times 20 April 2010
Questions (a) Describe the changes in house prices in Singapore from 2005 to the end of 2008. (b) Explain the likely value of the price elasticity of supply of houses in Singapore. (c) With the help of a diagram, explain how high global fuel and commodity prices resulted in inflationary pressures in the country. (d) Using economic analysis, explain how inflationary pressure and the financial crisis have affected house prices. (e) Using the information provided in Extract 1, explain the impact of changes in house prices on the macro economy. (f) (i) Explain one measure the Singapore government has taken to boost the housing market.
[2]
[2]
[4]
[6] [5]
[3]
(ii) With reference to the data provided where appropriate, and the microeconomic goals of the government, discuss whether there is justification for intervention in the housing market.
[8]
[30 marks]
5 Question 2 China US Trade Issues
Table 1: US trade with China (US$ million) 2005 41,192 243,470 -202,278 2006 53,673 287,774 -234,101 2007 62,936 321,442 -258506 2008 69,732 337,722 -268,039
Exports Imports Balance
Table 2: US trade with the world (US$ million) 2005 1,281,186 1,995,362 -714,176 2006 1,452,783 2,212,023 -759,240 2007 1,648,665 2,350,763 -702,099 2008 1,839,012 2,537,814 -698,802
Exports Imports Balance
Source: US Census Bureau / Foreign Trade Statistics
Table 3: China: Selected Economic Indicators 2000-2008 2000 GDP at constant prices 8.4 (Annual % change) Current Account 20.5 Balance (US$ billion) Domestic Currency per 8.28 US$ 2001 2002 2003 2004 2005 2006 2007 2008
8.3
9.1
10.0
10.1
10.4
11.6
13.0
9.0
17.4
35.4
45.9
68.7
160.8
253.3
371.8
426.1
8.28
8.28
8.28
8.28
8.19
7.97
7.61
6.84
Source: IMF: World Economic Outlook Database 2009
Table 4: Chinas Foreign Exchange Reserves (US$ billion) 2000 165.6 2001 212.2 2002 286.4 2003 403.3 2004 609.9 2005 818.9 2006 1066.3 2007 1528.2 2008 1946.0
Source: State Administration of Foreign Exchange of the Peoples Republic of China
6 Extract 1: Chinas Economic Conditions Trade and foreign investment flows have been major factors in Chinas booming economy. In 2008, China was the worlds second largest merchandise exporter and third largest importer. Over half of Chinas trade is conducted by foreigninvested firms in China. In 2008, foreign direct investment (FDI) in China totaled $92 billion, making it the destination for FDI among developing economies. The combination of large trade surpluses, FDI flows, and large-scale purchases of foreign currency (especially dollars) has helped make China the worlds largest holder of foreign exchange reserves at $2.3 trillion. The global economic crisis began to impact Chinas economy in late 2008. After growing by 13% in 2007, Chinas real GDP growth slowed to 9.0% in 2008 and to 7.1% in the first half of 2009 (year-on-year basis). Chinas trade and inflows of FDI diminished sharply, and millions of workers reportedly lost their jobs. Chinas exports to the United States collapsed by more than half between September 2008 and February 2009. The slump in American consumer spending may be causing as much pain for some Chinese exporters as it is for American businesses. But hard times are forcing American firms to look harder for savings, and many are finding these in China. American firms, to stay competitive, need to buy things from China. For American firms setting up in China, the chief attraction these days is not just its cheap labour but its increasingly affluent consumers. In a recent survey of American firms in China by the American Chamber of Commerce there, 63% said they were there to sell to locals, whereas only 9% said they were there to sell things back to America. The Chinese government has sought to boost the economy by implementing a $586 billion economic stimulus package (largely aimed at infrastructure projects), establishing easy money policies to boost banking lending, and providing assistance to various industries. Such policies have helped stabilize Chinas economy; real GDP is expected to grow by over 8% in 2009far higher than the expected growth of any other major economy.
Source: Adapted from Wayne M. Morrison, Chinas Economic Conditions, Congressional Research Service, 11 December 2009, and The Economist, 28 May 2009
Extract 2: Fare Well, free trade Countries that have relied on exports to drive growth, from China to Germany, will slump unless they can boost domestic demand quickly. There is a risk that in their discomfort, governments turn to protectionism.
7 In the US there are complaints that Chinese manufacturers enjoy an unfair advantage arising from the alleged undervaluation of the Chinese currency. Some politicians are calling for heavy tariffs on Chinas exports to the US. In September the White House announced it would boost tariffs on Chinese-made tyres at least 25% for three years, in response to complaints by organized labor about a tripling of Chinese-made imports over the last half-decade. The Chinese have threatened to retaliate by cutting imports of U.S. auto parts and chicken wings. Among the losers in the spat are two Ohio-based manufacturers, Goodyear Tyre & Rubber Co. and Cooper Tyre & Rubber Co., which have factories in China and sell imports in the U.S. market. Also suffering are U.S. tyre importers and, of course, U.S. consumers -- who can often save a lot by buying the cheaper Chinese-made product.
Source: Los Angeles Times, 16 November 2009
Questions (a) (i) Compare US trade balances with China and with the world for the period 2005 to 2008. How does the value of the Chinese currency in 2008 compare to its value in 2000?
[2]
(ii)
[1]
(iii) Based on the data on US trade, what evidence is there to suggest that a revaluation of the Chinese currency against the US dollar may not correct US trade imbalance? (b) Explain how the trend in Chinas foreign reserves is affected by the changes in the indicators as shown in Table 3. (c) Discuss whether the US governments decision to boost tariffs on Chinese-made tyres can be justified in terms of economic theory. (d) (i) Explain the relationship between Chinas current account balance and its economic growth rate as observed in Table 3. With reference to the data where appropriate, assess whether the increase in Chinas GDP is primarily due to its rising exports to the rest of the world.
[3]
[4]
[8]
[4]
(ii)
[8]
[30 marks]
3.
Despite an average growth rate of nearly 8 per cent from 2004 to 2007, Singapore was the first East Asian country to fall into a recession from the current global economic crisis after July 2008.
Sandre Thangavelu, 5 January 2009
Explain how the current global economic crisis has caused the Singapore economy to fall into a recession and assess the effectiveness of the policy measures adopted by the government in solving the problem. [25]
4.
Governments around the world aim to achieve the macroeconomic objectives of price stability, full employment, high sustained economic growth and healthy balance of payments. (a) Explain the importance of achieving these macroeconomic objectives. [10] (b) Discuss the view that governments are not able to achieve all the objectives simultaneously. [15]

H1 Econs 2010 Prelims

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Figure 1: World steel prices

Figure 2: Ukraine Real GDP

Source: Inside Council; Summit Business Media

Source: World Steel, WSD, Macquarie Research

Changes in GHG* emissions 1990 2009 (%)

Source: US Dept of Energy, http://www1.eere.gov *GHG greenhouse gas

Explain why steel production is inefficient from society's point of view.

4 Question 2 Economic Imbalances

Figure 5: US Balance on Current Account

Figure 6: Private Domestic Consumption as % of GDP, 2008

Table 1: Chinas Current Account Balance

Year 2008 2007 2006 2005

$426.11 $371.80 $249.90 $160.80

Source: World Development Indicators, The World Bank Group

Table 2: Singapores Exports & Imports

Source: Annual Economic Survey of Singapore 2009

Section B Answer one question from this section

ANDERSON JUNIOR COLLEGE JC2 PRELIMINARY EXAMINATION 2010 Higher 1 ECONOMICS

READ THESE INSTRUCTIONS FIRST

No. of daily trips ('000)

10,000 8,000 6,000 4,000 2,000 0

Total trips: 9,900 Total trips: 7,500 Total trips: 8,200

4,300 2,700 3,400

Private Transport Public Transport

1997 2004 2008

3.8 4.2 4.8

1.98 1.97 2.18

* include countries such as France, Belgium, Italy and Spain

CATHOLIC JUNIOR COLLEGE JC2 PRELIMINARY EXAMINATION

This document consists of 8 printed pages.

Catholic Junior College

Source: Land Transport Authority, Singapore

Catholic Junior College

Catholic Junior College

Catholic Junior College

Catholic Junior College

Imports from China Exports to China Total Trade

Catholic Junior College

China US $ exchange rate, Yuan per $1

The fixed exchange rate ended in July 2005

Source: Reuters EcoWin

Source: Monetary Authority of Singapore

Catholic Junior College

Catholic Junior College

READ THESE INSTRUCTIONS FIRST

Section A Answer all questions. Section B Answer one question.

This document consists of 8 printed pages.

DUNMAN HIGH SCHOOL Humanities Department (Senior High)

Year 6 H1 Economics (8819/1)

Chart 1: Estimated net sales in millions US$ (2002 2009)

Mass Market Paperback (in millions US$)

Source: Association of American Publishers 2009 S1 Report

Year 6 H1 Economics (8819/1)

Year 6 H1 Economics (8819/1)

Year 6 H1 Economics (8819/1)

Question 2: Trade and Economic Growth

Chart 2: US trade with China, 2000-2008

Year 6 H1 Economics (8819/1)

Chart 3: China Inflation Rate

Source: Trading Economics, http:/ /www.tradingeconomics.com

Year 6 H1 Economics (8819/1)