HCI Prelims 2010 Case Study

Workbook 2A pg 20-22

(a) (i) Explain what is meant by GDP at

constant prices. [2]

Define GDP
What is constant prices?
GDP refers to the total monetary value of all
final goods and services produced within the
geographical boundary of a country in a
specific period of time, usually a year. [1]
GDP at constant prices means that the effects
of inflation have been eliminated from the
GDP figures, where price level is based on a
given base year. [1]

Think! What is the difference between GDP at

constant prices and GDP at current prices?

Current price GDP measures value-added production in

today's prices.

(a)(ii) Describe the trend in GDP in Sg from

2007 (Q3) to 2009 (Q3) [3]

Look at the axis carefully! What does it say?

(a)(ii) Describe the trend in GDP in Sg from

2007 (Q3) to 2009 (Q3) [3]
GDP

increased at a
decreasing rate for the
period 2007Q3 to 2008Q3
[2] before it started to
decrease until 2009Q3.[1]
Students

can also get 2m if

they describe the rate of
change for the decreasing
trend. (GDP decrease at
increasing rate then
decreasing rate for the period
2008Q3 to 2009Q3)

(b) With the aid of a diagram, explain why the

MOS remains upbeat about future economic
situation in Sg despite the high inflation rate. [4]

The Minister remains upbeat about the Sg economy

as:

Sg is expecting a strong pipeline of foreign

investments and tourism projects that will provide
support to the Sg economy.
The expected rise in FDI and X will bring about a
rightward shift of AD curve
Real NY of the country will increase more than
proportionately
Creating employment for the locals as demand for factor
inputs including labour, increases
Illustrate with AD-AS diagram

AD-AS diagram to illustrate a rightward

shift of AD and LRAS
General Price
Level

LRAS0

P1
P2
P0
SRAS0

Y0

YF1

LRAS1
Inflationary pressures
arising from the rise
in AD is not a
concern for Sg as the
rise in investments
will also bring about
a rightward shift of
the LRAS curve.
The rise in GPL is
hence cushioned
AD1 Also, the rise in LRAS
AD0
brings about
sustained economic
growth for Sg.
Y1 YF2
Real National
income

b) Marking scheme

Max 2 if students only show shifts in either AD

or AS with diagram
Max 3 if students show shifts of both AD and
AS w/o touching on the effect on GPL
Students must show both AD and AS shifts
and the effect on GPL and output to get max 4

ci) Explain how the data suggest that the

US is heading towards stagflation? [3]

Stagflation is the economic phenomenon of rising

inflation rate and falling output level in the
economy. [inflation and recession]
The data indicates that the US is likely to head
towards stagflation.

With reference to Fig 2, the US is facing

rising unemployment rate, which has been
rising from 4% in 2007 to about 10% in 2010.
This suggests a sharp contraction of national
output over the same period of time. [1]

ci) Explain how the data suggest that the

US is heading towards stagflation? [3]

Extract 1 states that there might be cost-push

inflation due to surging oil and gasoline
prices. [1]
This is supported by Fig 3 where US CPI has
risen by about (655-608/608 * 100 = 7.7%)
from 2007 to 2010. [1]
1m for each evidence identified. Max 2m if
students did not attempt to link unemployment
to output level even though they covered 3
pieces of evidences.

cii) economists generally remain more

concerned about the immediate threat of
recession than the more distant fear of
higher inflation. To what extent is the above
view of the economists justified?

Questions on discuss
Discuss whether
Discuss the view that
Discuss the validity of the statement/view
that
Discuss the extent to which
Discuss the policy options/measures for..
Discuss the impact of
Given a quote. Discuss

To what extent
Can adopt the Thesis-Antithesis-Synthesis (TAS)
structure
The Thesis is that the statement holds or the view
is valid. You will need to explain why the
statement holds, using relevant economic theory
or analysis.
The anti-thesis is that it does not hold or is not
necessarily true. Explain conditions,
circumstances or situations in which the
statement or view or theoretical r/s may not hold.
It could be that the thesis depends on certain
assumptions which may not hold in reality.

TAS structure
The synthesis is an important part of the
answer and may be put in the conclusion.
It often determines the evaluation marks
as it shows whether the student is able to
form a judgment after considering the
opposing points of view in the thesis and
anti-thesis.

In the synthesis, you may

Make an overall judgement whether the
statement is valid or not
Highlighting the key arguments to support
your judgment, which should apply to the
context where appropriate. E.g. if the Q is in
Sg context, make a judgment whether it is
generally true for Sg.
Or you may summarise the conditions upon
which the validity of the statement or view
depends on (i.e. what does it depend on?)

cii) economists generally remain more

concerned about the immediate threat of
recession than the more distant fear of higher
Conflicts may arise when the US govt tries
inflation. To what extent is the above view of
to economists
attain the goal
of low unemployment
the
justified?
and inflation. [tradeoffs]
Whether the US govt should be concerned
with the problem of high unemployment or
highvinflation depends on the situation of
the US economy currently.

cii) To what extent is the above view of

the economists justified?
Thesis:
US govt should view recession as a more
immediate threat than inflation
Justification:

According to Extract 1, spare capacity currently

room for AD to grow through expansionary policies
to solve demand-deficient unemployment. No
pressures for demand-pull inflation to set in as yet.
Students can explain the costs of slow economic
growth or high unemployment on the economy.

cii) To what extent is the above view of

the economists justified?
Anti- thesis:
US govt should view inflation as a more
immediate threat than unemployment
Justification:

Even though AD is weak, SRAS is shifting left due

to cost-push inflation resulting from global rising
food and oil prices (Extract 1)
Inflation would be exacerbated if AD shifts right as
a result of expansionary demand management
policies
Students can explain the costs of high inflation on
the economy.

cii) To what extent is the above view of

the economists justified?

Synthesis and conclusion:

According to Figure 2 and 3, unemployment rate

has doubled (from below 5% in 2008 to a high of
about 10% in 2009) while GPL has only risen by
2.4% during the same period. Although GPL
increased rapidly in mid 2008, it eased by 3Q of
2008.
Overall, the evidence seems to suggest
that the recession is a more immediate
threat than higher inflation.

cii) To what extent is the above view of

the economists justified?

L1: 1-2 One sided answer

L2: 3-4 Two sided answer

L3: 5-6 conclusion with a justified stand .

Max 3 if students focus on just explaining the negative

effects of unemployment and inflation on the economy.
Max 4 if students attempt to explain the conflicts of
attaining low inflation and unemployment through the
use of expansionary AD policies
Max 5 if students attempt to explain the conflicts of
attaining low inflation and unemployment through the
use of expansionary policies + use of evidences found in
the extracts
Max 6 if students come to a justified stand using
numerical data to support the conclusion