Suggested Answers of BT2 Revision Package - ASKnLearn

(10) 2011 RI Prelim H2 Paper Q4The Economic Strategies Committee was set up by the government in May 2009 tochart Singapore’s future growth directions. The Committee’s key recommendation is toraise Singapore’s annual productivity growth from an average of 1 percent in the pastdecade to 2 to 3 percent over the next decade. This is a major shift from thegovernment’s past strategy of heavy reliance on labour inputs to generate economicgrowth.(a) Explain the key macroeconomic objectives of a government. [8] (b) Discuss whether the shift towards productivity-­‐driven growth will help Singapore achieve its macroeconomic objectives? [17] (a)Introduction:§Identify the 4 main macroeconomic goals of a government – sustained economic growth, low unemployment, low inflation and BOP equilibrium Body: Explain the meaning of each macro goal and the key reason/s for each goal, i.e. the benefits arising from achieving the macro goals. §Sustained economic growth o Sustain economic growth is a sustained increase in actual output as measured by higher Real GDP and increase in potential output/ productive capacity. o Actual growth is desirable as it leads to higher standard of living if population growth is slower as more goods and services are available for consumption. It also results in easier redistribution of income which can dampen the effects of income inequality in a country. o Potential growth is desirable as it promotes price stability and leads to non-­inflationary actual growth in the LR if AD increases. It also leads to sustained rise in SOL. Sustained economic growth also lowers cyclical unemployment. §Low unemployment rate o Unemployment Rate = % of unemployed workers in the labour force. The unemployed are people of legal working age who are actively looking but unable to find work. o Low unemployment or full-­‐employment is desirable as the economy is producing the maximum output possible with all its resources, thereby maximizing the country’s standard of living. Low unemployment will also lead to less social costs and hysteresis (loss of skills) due to long periods of unemployment; which may dampen a country’s economic growth. It will also result in less burden on the government budget due to lower welfare benefits and higher tax revenue. Apart from achieving