Yss1203 Principles Of Economic: Performance Assessment Answers

Answer:

A commendable economic performance of Singapore has turned it a developed nation in just few years. In many of the economic aspects, Singapore is even better than other developed nations in the world. Allowing openness is a major feature of this country. The economy is highly dependent on its external sector. Electronic goods, medical and pharmaceuticals product, Information Technology related goods are examples of goods exported from Singapore. The country often imports industrial input to a large scale. Despite that, the country manages to maintain a positive balance in its net export account. For the domestic economy as well, a free market environment characterizes the economic nature.

Objective of the present paper is to make an analysis of overall economic performance of the economy. The economic performances are evaluated for last ten years in terms of three major indicators- Output or GDP, price level that is inflation trend and unemployment trend for viewing labor market performance.

Output Performance Analysis

Real GDP

Gross domestic product is sum of the monetary values of recorded goods and services in a nation in a particular year. For computation of GDP, all the goods and services are evaluated with their market price. There are two choices of market price used for GDP computation. One is using the current market price. If there are high level of inflation in current year then goods and services are overvalued. Similarly, in times of deflation goods and services are undervalued. GDP with current year price is called nominal GDP. To avoid the over or under estimation of GDP it is better to use market price of a stable fixed year. GDP computed with a fixed base year is known as Real GDP. Real GDP is closer to the actual valuation of goods and services of the country as the selection of base year is made with great care and be the one when the economy is free from any abnormal shocks.

Real GDP growth

Absolute value of GDP gives the value of output in absolute terms. However, economic growth depends on the rate of change in GDP. The change in GDP from one year o its subsequent year is expressed as a percentage of previous year GDP. This is termed as growth in GDP or economic growth rate (Smith et al., 2015). Similarly, real GDP growth rate is the percentage change in Real GDP.  Growth in real GDP is most often used as a measure for economic growth rate.

Per capita real GDP

Per capita real GDP is a measure of average income of the nation. As it is obtained by dividing total GDP by population it gives average productivity of a nation.

Performance in Singapore

The indicators used for output analysis are related to each other. Performance trend in output is evaluated using information presented in the tables and graphs given below

Table 1: Real GDP growth rate and per capita real GDP in Singapore

(Source: worldbank.org, 2017)

Figure 1: Real GDP in Singapore

(Source: tradingeconomic.com, 2017)

Figure 2: Growth trend in real GDP

(Source: worldbank.org, 2017)

Figure 3: Per capita Real GDP

(Source: worldbank.org, 2017)

The trend obtained from the above graphs and tables can be summarized as follows. In 2008 the economy is suffers from an external shock. This is reflected from a declining output performance of the economy in that year. The effect on Real GDP is transmitted to economic growth rate and average income. In 2009, the recorded GDP growth rate is -6%. This implies GDP goes down in 2009 as compared to that in 2008. Correspondingly per capita real GDP also reduces from 42650.10  USD in 2008 to 41133.30 USD in 2009. Output performance revived in 2010 with a growth rate of 15.2%. Average income also increase this year with the figure become 46569.68 USD. After the massive jump in the growth rate, in the next few years growth rate is records a positive value (Bernanke, Antonovics and Frank 2015). In 2014 growth rate slows down from 5% in 2013 to 3.6% in 2014. The surprising fact is that despite a declining growth rate per capita income still increases from 50467.84 US dollar to 51440.82 US dollars.

Government measure to improve output performance

Government has two kinds of policy tool- fiscal policy and monetary policy. Fiscal policy is implemented either by changing direct government expenditure or by changing the tax rate whereas monetary policy deals with adjusting the supply of the money. Monetary policy tool is used to tackle inflation problem. However, in Singapore direct tool of fiscal policy is not applicable because of the multiplier effect.

Singapore government provides output assistance by designing some targeted policy tool. To improve the output performance government has formed a special committee – ‘Economic Strategic Committee’. Objective of this committee is to achieve a production driven growth for the economy (gov.sg, 2017). For this, productivity needs to be improved. Therefore, the committee focuses on development of skill for the labour force. Business and production houses are encouraged for increasing investment in innovation and use advanced technology to increase output.

There is a national council to look over efforts to increases productivity both from private and public agencies (Hsueh, Hu & Tu, 2013). To enhance productivity research centres have been set up in different parts of the nation.

Labour market analysis

Unemployment trend in Singapore

 Unemployment figures in Singapore for the last ten years is given in the following table

Table 2: Rate of unemployment in Singapore

(Source: tradingeconomics.com 2017)

Figure 4: Unemployment trend in Singapore

(Source: tradingeconomics.com 2017)

From the unemployment figures given in the above table it can be said that Singapore is successful in maintaining a low unemployment rate. There is an overall falling trend in unemployment rates. In 2005, recorded unemployment rate was 3.1%, which has become 1.95% in 2014. Unemployment increased only in 2009. This is supported by the fact that the economy recorded a poor output performance with a negative growth rate in real GDP. Labor force participation in Singapore has also increased over time (Azamet al., 2015). The average unemployment rate in Singapore from 2000 to 2016 is 2.45% which is lower than some of the developed nations.

Unemployment and its type in an economy

Unemployment is the most significant indicator of labor market performance. It is an incidence e when some of the willing participants in the labor force cannot find job to sustain their life. There is unemployment of different types:

Cyclical unemployment:  Unemployment of cyclical type is related with business cycle phenomenon. In times of recession or depression there is a declining demand in the economy. This hampers production activity and demand for labors in indifferent industries and hence results in unemployment of people related with these industries.

Structural Unemployment: As the name suggests structural unemployment is related with the structures of the industry. Industries often consider changes in their structures for improvement in productivity. In this process labors lacks skills to adjust in the new structure loss their jobs.

Frictional unemployment:  Frictional unemployment refers to the unemployment of because of sectoral transition.

Other types of unemployment are seasonal unemployment, disguised unemployment and technological unemployment.

Unemployment type in Singapore

Unemployment rate is low and stable as suggested from the unemployment trend in Singapore. However, unemployment though little is the result of different types of unemployment. Types of unemployment found in Singapore are structural unemployment, cyclical unemployment and frictional unemployment.

Structural unemployment: Singapore is an open economy. The economy increasing participate in the globalization process with increasing global integration. However for successful integration and become int6enationally competitive Singapore needs to consider revising industrial and economic structure. This causes structural unemployment for some sectors. The common incidence of structural unemployment is experience when some industries in Singapore shifted to a labor saving production technology (Balassa, 2014).

Cyclical unemployment:  Cyclical unemployment in Singapore causes due top fluctuation in export demand. Many industries is Singapore is export depended. Therefore, unstable economic condition of its trade partners affects aggregated demand in Sigapore4 and lead to cyclical unemployment (Tan, 2015)

Frictional unemployment:  With changing economic structure people in Singapore prefers vto shift to some other industries and remain unemployed in between the switching period.

Singapore government measure for full unemployment

Singapore government targets for a full employment in Singapore and thus taken steps for completely eliminating Unemployment.

One feature of Singapore labor force is that there are both domestic and foreign laborers. It will be beneficial for the national labor market if vthe3se two groups of laborer work together rather than competing with each other. Therefore, government encourages employers to hire workers from both group and eliminate all discriminatory practices (Cheong et al., 2016).

Government conducts career support program to provide assistance to different groups of laborers. Range of sectors included under the career support program is gradually expanding. Some government programs to help unemployed are PMET and P-Max (Rodan, 2016). Apart from providing direct employment government encourages employers in different industries to hire more and more workers and provide them considerable subsidies.

Price level analysis

Recorded inflation figure for the ten years period is given in the following table

Table 3: Inflation rate for Singapore

(Source: worldbank.org, 2017)

Figure 5: Inflation trend in Singapore

(Source: worldbank.org, 2017)

Like unemployment rate inflation in price level in Singapore is in a stable state. The country makes significant improvement in its inflation trend since 1960. Consumer Price Index is used in Singapore for measuring core inflation rate. Cost of food and transportation has increased while that of housing cost declined (Samarina & De Haan, 2014). There are some variations in monthly inflation rate and may record slight increase from one month to another. However, the overall inflation rate is falling and stable.

Inflation and its causes in an economy

Fluctuation in the price level is measured with the inflation and deflation in the economy. Inflation is defined as a steady rise in the price level (Stiglitz, 2015). Inflation in an economy occurs wither due to demand side factor or due to cost side factors. Accordingly inflation is termed as demand pull inflation and cost push inflation.

Demand pull inflation

Demand pull inflation results from the increase in aggregate demand. When demand increases then supply may fall short of demand and gives the producers opportunity for rai9sing price.

Cost push inflation

Increasing production cost causes inflation. Lack of supply in certain raw materials or an increase in price in the factor prices increases production cost. In order to recover production cost and to maintain profit margin suppliers increase price in good market (Abbas Rizvi et al., 2014).

Cause of inflation in Singapore

Different causes of prevailing inflation in Singapore are discussed below:

Demand pull inflation: Any factor that increases aggregate demand is responsible for demand pull inflation. In Singapore government expenditure has increased for defense service. Another factor for demand pull inflation in Singapore is rise in net export.

Cost push inflation: Increasing production cost due to increase in labor wages cause cost push inflation in Singapore.

Imported Inflation:  In Singapore rise in price of imported goods affect the domestic price level. This is called imported inflation (Gagnon, 2014).

Government measure for price stability

Singapore government does not use direct monetary policy tool to achieve price level stability. The policy of exchange rate control is used to reduce imported inflation (Kasznik & Kremer, 2014). Here the exchange rate is kept at a low level to maintain a lower import price. The demand pull inflation is counteracted by giving focus on the supply side factors. Attention is given on improving the productivity of the labor force by improving skill.

Conclusion

The analysis of economic performance explains why Singapore is considered as a developed nation. When considers the output performance trend it is improving gradually and in some cases rapidly. Like between 2009 and 2010 the growth rate jumped from a negative 6% to a positive 15.2%.  Structural, cyclical and frictional unemployment is observed among the labor force. However, the unemployment rate is not a big problem because of its lower percentage. Still government is trying to eliminate the problem from its root and secure a full employment. Coming to price level analysis, though both demand pull and cost push inflation prevail in the economy, imported inflation is most important. In order to stable import price government maintains a lower exchange rate.

References

Abbas Rizvi, S. K., Naqvi, B., Bordes, C., & Mirza, N. (2014). Inflation volatility: an Asian perspective. Ekonomska istraživanja, 27(1), 280-303.

Azam, M., Khan, A. Q., Bakhtyar, B., & Emirullah, C. (2015). The causal relationship between energy consumption and economic growth in the ASEAN-5 countries. Renewable and Sustainable Energy Reviews, 47, 732-745.

Balassa, B. (2014). Development Strategies'. International Economics and Development: Essays in Honor of Raúl Prebisch, 159.

Bernanke, B., Antonovics, K. and Frank, R., 2015. Principles of macroeconomics. McGraw-Hill Higher Education.

Cheong, K. C., Hill, C., Fernandez-Chung, R., & Leong, Y. C. (2016). Employing the ‘unemployable’: employer perceptions of Malaysian graduates. Studies in Higher Education, 41(12), 2253-2270.

Data.worldbank.org. Retrieved 2 August 2017, from https://data.worldbank.org/country/singapore.

Gagnon, J. E. (2014). Alternatives to Currency Manipulation: What Switzerland, Singapore, and Hong Kong Can Do. change, 2012, 13.

gov.sg | How is the government helping to mitigate inflation in Singapore?. (2017). Gov.sg. Retrieved 3 July 2017, from https://www.gov.sg/factually/content/how-is-the-government-helping-to-mitigate-inflation-in-singapore

Hsueh, S. J., Hu, Y. H., & Tu, C. H. (2013). Economic growth and financial development in Asian countries: a bootstrap panel Granger causality analysis. Economic Modelling, 32, 294-301.

Kasznik, R., & Kremer, I. (2014). The Strategic Timing of Management Earnings Forecasts around Scheduled Releases of Macroeconomic News(No. 3046).

Rodan, G. (2016). The political economy of Singapore's industrialization: national state and international capital. Springer.

Samarina, A., & De Haan, J. (2014). Right on target: exploring the factors leading to inflation targeting adoption. Contemporary Economic Policy, 32(2), 372-389.

Smith, C. J., Donaldson, J. A., Mudaliar, S., Md Kadir, M., & Yeoh, L. K. (2015). A handbook on inequality, poverty and unmet social needs in Singapore.

Stiglitz, J. E. (2015). Reconstructing macroeconomic theory to manage economic policy. In Fruitful Economics (pp. 20-56). Palgrave Macmillan UK.

Tan, A. H. (2015). Economic prospects of Singapore.

Tradingeconomics.com. Retrieved 2 August 2017, from https://tradingeconomics.com/singapore/labor-force-participation-rate