Suggested Answers of BT2 Revision Package - ASKnLearn

§ Policies/Measures to increase productivity: Subsidize education and training toequip workers with new knowledge/skills, tax incentives /subsidies, subsidize firms’R&D initiatives etcBody:Thesis: A productivity-driven growth will help Singapore achieve its macro goals of LRnon-inflationary economic growth, as well as improves its BOP.§ Students are expected to explain how the measures to improve productivity willachieve macroeconomic objectives in Singapore.§ Impact on potential growthèIf the above measures adopted by the government are successful, the higherproductivity will increase the economy’s productive capacity in the LR, as more outputcan be produced with the given resources. In addition, COP/ATC also falls becauseevery unit of output now requires less time and hence less labour cost to produce, i.e.higher productivity leads to lower AVC and hence lower ATC. This LR effect on COP &potential growth leads to both a downward and rightward shift of the AS.GPLAS 0 AS 1P 1P 3P 0AD 0AD 1Y 0Y 1 Y 2Real NY§ Impact on actual growth, employment, GPL & BOPè Interventionist measures discussed above will lead to increased AD due tohigher I and G. As Real NY rises, firms’ demand for labour increases andcyclical unemployment falls. This will bring the economy closer to its potentialoutput depending on the increase in I and G. This SR actual growth leads tohigher GPL as productivity remains unchanged.è In the LR, when productivity is successfully raised, the lower COP leads tolower GPL.è With falling COP & GPL, the quantity of output demanded by the 4 sectors ofthe economy increases, including export demand & FDI by the foreign sector.This impact is, represented by a movement along the new AD curve, raisingReal NY further from Y 1 to Y 2 .