HWA CHONG INSTITUTIONC1 H2 ECONOMICS 2012Data Response Question

Name: ( ) CT Group: 12 __

Time Allowed: 1 hour

The Global Economic Condition

Table 1: Selected Macroeconomic Indicators: United States, 2007 – 2010

Economic Indicators 2007 2008 2009 2010┼

% change in GDP at constant prices (year-on-year)

2.0 0.0 -2.6 2.7

Unemployment rate (% of total labour force) 4.6 7.2 9.3 9.7Inflation (annual % change) 4.1 0.7 1.9 1.4

Current account balance (US$ billion) -718.1-

668.9-

378.4-

470.2

Table 2: Selected Macroeconomic Indicators: China, 2007 – 2010

Economic Indicators 2007 2008 2009 2010┼

% change in GDP at constant prices (year-on-year)

14.2 10.0 9.1 10.5

Unemployment rate (% of total labour force) 4 4.2 4.3 4.1Inflation (annual % change) 6.6 2.5 0.7 4.7Current account balance (US$ billion) 371.8 436.1 297.1 269.9

┼ Projected/ Estimates Source: World Economic Outlook (October 2010)

Extract 1: Multi-Speed RecoveryIn its latest forecasts, released on April 21st, the International Monetary Fund (IMF) predicts that global output will grow by 4.2% this year. In its half-yearly World Economic Outlook (WEO), IMF said the triggers for this rebound were strong public policies across advanced and emerging economies and central banks reacted quickly with exceptionally large interest rate cuts as well as unconventional measures to inject liquidity and sustain credit.

The trouble is that the good fortune has not been shared equally. This time around countries that were least affected by the recession (primarily the largest emerging economies) are seeing the fastest acceleration in growth. In contrast, developed nations are expected to grow modestly.

One reason for this multi-speed recovery is that the financial crisis was largely confined to the rich world, and recoveries after such crises tend to be slow. Another factor is the differences in the scope for, and effectiveness of, policy stimulus. Thanks to their low debt levels and the high reserves accumulated, many big emerging economies used fiscal and monetary stimulus vigorously and effectively. The pump priming also worked better because modest corporate and household debts mean that tax cuts or cash handouts are more likely to be spent then saved. For the advanced countries, the lag is primarily due to underlining weaknesses such as high debt, and low savings. In the US and Britain, in particular, high unemployment combined with high household debt and continuing home-mortgage foreclosures means that consumers simply are not in a position to drive recovery. The quantitative easing in advanced countries such as US and Britain also did not seem to work. And in the euro zone, individual countries lack an independent monetary policy.

Prepared by Chee Yuan Jun 1

HWA CHONG INSTITUTIONC1 H2 ECONOMICS 2012Data Response Question

Source: The Economist, 22 Apr 2010Extract 2: Bubbles, oil & troubles: How rising prices threaten the global recovery

Prices of just about everything have been rising precipitously in recent months –  from cotton and corn to copper, and, of course, oil. Generally speaking, high prices for commodities are bad for growth, for two reasons. First, they spark inflationary pressures that can force central banks to hike interest rates, thus slowing down economies. Secondly, they cause consumers and companies to spend more on food, raw materials and energy. That eats into their ability to spend on other stuff and dampens economic growth as well. With oil at $100, you’d think the world’s economists would be in a frenzy of dire predictions and growth downgrades.

Oil has jumped recently because of the uprisings in Egypt and Libya. Furthermore, in the U.S., where families are already under duress from joblessness and the housing crisis, higher prices for food and gasoline could make American consumers even less able or more reluctant to spend. In an economy so dependent on private consumption for growth, that can’t be good.

Source: Time, 1 March 2011Extract 3: Key Budget Initiatives

The Government will introduce a temporary Jobs Credit scheme which will encourage our businesses to preserve jobs in the downturn. Employers will receive a 12% cash grant on the first $2,500 of each month’s wages for each employee on their CPF payroll. Furthermore, to help Singaporeans stay employed or seek reemployment, the Government launched the Skills Programme for Upgrading and Resilience (SPUR) which provided higher course fee support for individuals and companies that send their workers for training.

Source: Ministry of Finance, Singapore Budget 2009 

Questions(a) (i) Define Gross Domestic Product (GDP). [1]

(ii) Compare the real GDP growth for China and America for the period from 2007 to 2009. [2]

(b) (i) Evaluate if emerging economies like China are able to use "fiscal and monetary stimulus vigorously and effectively" to allow their economy to recover from the recession. [6]

(ii) Using economic analysis, explain why rising oil and food prices are a concern for the United States of America. [5]

(iii) Suggest how the Singapore Government's Jobs Credit Scheme and SPUR will help Singapore in the recession. [3]

(c) Discuss whether the data provided is sufficient to assess that the standard of living in China is better off than that of the USA. [8]

[Total: 25 marks]

Sources: - Tables 1, 2 and Extract 1 inspired by HCI Prelim 2011

Prepared by Chee Yuan Jun 2

HWA CHONG INSTITUTIONC1 H2 ECONOMICS 2012Data Response Question

- Question (a)(i), (a)(ii), (c) inspired by HCI C1 H2 Economics Timed Assignment 2 2011- Extract 3 inspired by NJC Prelim 2010

Prepared by Chee Yuan Jun 3