Suggested Answers of BT2 Revision Package - ASKnLearn

As output increases, real national income increases from Y0 to Y1, indicatingactual economic growth. At Y1, national income would have changed by multipletimes the initial increase in autonomous exports, to a factor of 1/marginalpropensity to withdraw which is the strength of the income multiplier. This occursbecause households, whose incomes increase when autonomous exportsincrease, will spend some of their increased incomes on domestically producedgoods and services, generating more income for other households. This occursuntil total withdrawals in the Singapore economy becomes equivalent to the initialincrease in exports.§Small economies thus benefit more than large and open ones as globalization helpsthem overcome their limited domestic market size to grow their economies. In theprocess, reduce demand deficient unemployment. BOP CA improves, ceterisparibus, because exports increase. This helps Singapore achieve a healthy BOP.§Expansion of demand for G&S by catering to world market also helps firms located insmall and open economies to reap IEOS for better productive efficiency [mayillustrate as a movement towards MES using LRAC curve]. This compares to firms incountries with large domestic demand where IEOS can be reaped without exportdemand, hence benefitting less from the increase in trade associated withglobalization.oSmall and open economies also benefit more than large and less open economies fromthe freer trade in goods and services as follow:oSmaller economies like Singapore have smaller domestic markets which generally lackthe breadth and depth of those found in large economies like the US. Without freer trade,residents in Singapore necessarily consume a smaller variety of goods and services than