Suggested Answers of BT2 Revision Package - ASKnLearn

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• Exchange rate policy may not be adequate to resolve inflation.Other policies:1) Contractionary Fiscal Policy to reduce AD domestically2) Supply side policies to increase AS – market oriented and interventionist to reduceinflation.3) Trade policy to diversify buying of goods and services sources to reduce dependencyand seek cheaper alternative sources.Conclusion:• Exchange rate policy is not sufficient to solve inflation. This policy helps to maintain lowerimport prices to curb inflation but make exports less competitive which results in BOTdeficit or lower AD – result in conflict with other aims – Favourable BOP or growth etc.Level 1 Superficial or vague explanation provided or just mere listing of policy 1-4Level 2 Clear policy explanation and linked to the macroeconomic issue –exchange rate policy option and adequately mention other policies toresolve the inflation.5-8Level 3A balanced approach taken to explain the various policies to resolveinflation within a country. (3 policies)9 - 11E1 Superficial or vague evaluation of policies. Attempts to evaluate policies. 1-2E2 Clear evaluation of various policies, comparison of policies – if applicable. 3-4
(16) 2011 MI Prelim H2 Paper Q4The Monetary Authority of Singapore revalued the currency in April 2010 and said inOctober 2010 it would steepen and widen the currency’s trading band while seeking amodest and gradual appreciation.(a) Explain Singapore’s choice of using exchange rates rather than interest rates as aninstrument for its monetary policy. [10](b) Assess the impact of the revaluation and the changes made to the currency’s tradingband on the Singapore economy. [15]Suggested Answer Scheme:(a) Explain Singapore’s choice of using exchange rates rather than interest ratesas an instrument for its monetary policy. [10]Exchange rate measures the price of domestic currency in terms of another foreign currencywhereas interest rate is the cost of loans or borrowing.Changes in exchange rate can be used as an instrument for monetary policy by altering theprice of exports and imports and hence, causing changes in export revenue and importexpenditure to influence economic growth and unemployment.However, interest rate can be used as an instrument for monetary by changing the cost ofborrowing. For instance, an increase in interest rate can increase the cost of borrowing andin turn, cause returns from investment to decrease and hence, lower investment. This in turninfluences AD to affect economic growth and employment.However, interest rate is ineffective as a choice of monetary policy.Singapore’s small and open economy results in a lack of monetary control and hence,interest rates would be volatile. Singapore’s vulnerable to capital flows is due to Singapore’sposition as an international financial centre. This can result in an inflow of ST capital whichwould negate any increase in interest rates and push interest rates down. Hence, interestrates would not be a useful instrument for its monetary policy in Singapore due to itsopenness to capital flows.Singapore’s GDP is mainly contributed by export growth. Hence, keeping exchange ratescompetitive in the short term would reduce price of exports and assuming Ex +Em >1 i.e.Marshall Lerner condition holds, this would result in an intended increase in AD i.e.
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ST ANDREW’S JUNIOR COLLEGEH1 ECON
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demand for hotel accommodation. The
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Cost/Benefits/$ Welfare loss MSC =
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more than proportionate fall in qua
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Price S P 1 P 2 D 1 D 2 Market for
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ERP• Works by charging drivers an
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2010 YJC Prelims H1 Paper CSQ1: Hou
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quantity transacted increases and h
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with the large amount of subsidies
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(b) With the help of a diagram, ana
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Hence as long as the West is willin
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Marks Scheme:L3( 7 - 8m)L2(4 - 6m)L
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conclusion about absolute value of
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• Germany’s revival has been bu
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(ii)With reference to the data, ass
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L3L2L1EA balanced discussion of the
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(b)Explain how a rise in interest r
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(d)Consider whether the evidence in
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The higher spending, translating in
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2010 RI (JC) Prelims H1 Paper CSQ2:
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This will increase SOL of Chinese a
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2. Appreciation is also needed to d
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Increase Real output for Asiaproduc
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Section B: EssaysMicroeconomics:1.
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Roads for Cars A X B Other infra
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With reference to Figure 2 above, (
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Conclusion:The future impact in the
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ConclusionSummarise and link to par
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Explain causes ofan increase in pri
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(b) Discuss the view that price con
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Take astandConclusionPrice ceiling
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Possible non-price determinants of
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Suggested answer (b)Price elasticit
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Limitations of non-pricing strategi
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Internet broadband connectionFoodEf
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3. Antithesis: success of policy do
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EvaluationE2For a reasoned judgemen
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LevelsL3(7m - 10m)L2(5m - 6m)L1(1m
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Page 144 and 145: 2010 IJC Prelim 2010 H2 Paper Q6(a)
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