Suggested Answers of BT2 Revision Package - ASKnLearn

Part (b)Discuss whether globalisation has benefitted small and open economies like Singaporemore than large and open economies like the USA. [13]Scope requirements: Handles all 3 facets of globalization. Touches on micro and macrogoals.1. Introduction:ooooDefine globalization as the free movement of goods and services, labour, capital andtechnology.State that Singapore is a relatively small economy with domestic markets that arelimited in size and is an open economy where trade to GDP ratio exceeds 300%,amongst the highest in the world.State that other economies, such as the US and Indonesia, have large domesticmarkets and are less open as trade to GDP ratio is much lower, at about 28 and 53%respectively.Explain that globalization benefits economies when they help the countries achievetheir micro and macroeconomic goals:o Economic growth, low inflation, full employment, healthy BOP position,efficiency, equity, stabilityTheses: Small and open economies such as Singapore benefit more than large andless open economies:oSmall and open economies have larger dependence on external demand in the form ofexports to drive economic growth:oGlobalisation, with the free movement of trade, helps expand markets for small and openeconomies, thus helping raise exports for economic growth.§With more markets open to them, export demand increases. This increases AD andbrings about economic growth, fall in unemployment and BOP CA improvements.[Illustrate using AD-AS model].oAn increase in exports would increase AD from AD0 to AD1 as shown in the diagrambelow. At the existing GPL P0, a shortage develops as firms exporting to foreignmarkets, such as those producing electronic valves and hard-disk drives, drawdown their inventory stocks in order to meet the shortage. They thus faceunplanned disinvestments. In the next production cycle, they will increaseproduction, hiring in the process more FOPs, including labour, thus increasingemployment. Holding labour force constant, this reduces the unemployment rate.