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A level Essay Exam Questions by Topic (2000-2012)

Central Problem of Economics PPC Economic !ystems 1. a. b. Explain TWO ways in which an economy might move from a point within its production possibility curve (PP ! to a point on it. "1#$ %iscuss the most effective economic policies to move the PP outwards. "1&$ (#&'P(!

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a.

Explain how scarcity* choice and cost are related to the problems of consumers and producers. "1)$ +ssess whether these concepts are of relevance for governments when ma,ing macroeconomic policy. "1($ (#)'P(!

b.

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%iscuss whether the price system is the best mechanism for the allocation of economic resources. ")&$ (#1'P(!

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a. b.

What is meant by the basic economic problem of scarcity. "1)$ %iscuss whether economic growth solves the problem of scarcity. "1($ (##'P(!

"eman# an# !upply Elasticity 1. /n )##&* the rate of 0oods and 1ervices Tax (01T! in 1ingapore rose from (2 to &2. /ncomes rose by approximately -.&2 in )##&. a. b. Explain the li,ely effect of this change in 01T on expenditure by consumers on different types of goods. "1#$ %iscuss whether the combined effect of the rise in incomes and the rise in 01T is li,ely to cause the 3uantities of different types of goods sold to rise or fall. "1&$ (#4'5)!

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The terrorist attac, on 6ew 7or, on 11 1eptember )##1 caused a worldwide recession and an increased fear of flying* both of which severely affected the
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demand for travel by air. This led to the closure of some of the ma8or airlines in world. a. With the aid of diagrams* explain how the recession and the closure of some of the ma8or airlines of the world affected the mar,et for air travel. "1#$ +ssess the relevance of price elasticity of demand* income elasticity of demand* cross9elasticity of demand and price elasticity of supply in explaining the effects of these events on the airline industry. "1&$ (#-'P(!

b.

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a.

Explain the concepts of price elasticity of demand and income elasticity of demand* indicating why elasticities are different for different products. "1)$ b. %iscuss how a supplier of a product that is currently fashionable might use both of these concepts in ma,ing price and output decisions. "1($ (#('P(!

:/n a free competitive mar,et* a shortage causes price to rise* a surplus causes price to fall. /n some mar,ets this does not happen because a minimum price is fixed by producers.; a. b. With the aid of diagrams and examples* explain why prices rise when there are shortages and fall when there are surpluses. "1#$ %iscuss the factors that a group of companies might consider when deciding to fix a minimum price in a mar,et. "1&$ (#)'P(!

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a. "1#$ b.

Explain price elasticity of demand and income elasticity of demand. + government is proposing to increase the tax on petrol. Examine the relevance of price elasticity of demand and income elasticity of demand for this proposal. "1&$ (#1'P(!

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a.

Explain price elasticity of demand* income elasticity of demand and cross elasticity of demand. "1)$

b. /n 1==> an airline offered very cheap flights from the ?@ to other parts of Europe. 5owever* the service was not very fre3uent* tic,ets could not be boo,ed at agencies but only directly with the airline* and no meals were offered on the flights. %iscuss whether the different elasticity concepts could be useful in explaining this airline;s pricing policy for its flights. "1($ (##'P(!

4.

%evelopments in modern technology* such as faster broadband internet connections* portable %A% players* iPods and BP( players* have had ma8or impacts on the demand for and supply of recorded music and associated products.

+ssess how the mar,ets involved might be affected by these developments. ")&$ (#>'P)!

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There have been large changes in the price of crude oil over the past few years.

%iscuss what determines whether consumers or producers are more li,ely to bear the cost of these oil price changes. ")&$ (#='P)!

The price of sugar* an ingredient in many canned soft drin,s* dropped dramatically by ()2 between Culy )##< and October )##>. 5ealthy living campaigns meant consumers became more aware of the possible health dangers of consuming too much sugar and they switched to :diet; drin,s that do not contain sugar.

%iscuss how the combination of the fall in the price of sugar and the healthy living campaigns might affect expenditure by consumers on non9diet and diet canned soft drin,s. ")&$ (1#'P)!

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1ingapore is facing an ageing population issue. Dy )#(# senior citiEens are expected to comprise almost )#2 of the population.

?sing economic analysis* discuss the li,ely effects of this demographic change on product mar,ets in 1ingapore. ")&$ (11'P)!

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Bost brands of car are available in different models. + large rise in the cost of car manufacture and a rise in incomes are li,ely to affect the sales of various models of car in different ways. a b Explain how elasticities of demand can assist in understanding the effect of each of these changes on the sales volume of different models of car. (1)! ompare and contrast the li,ely combined impact of both these changes on the revenue earned from the sales of different models of car. (1(! (1)'P)!

Pro#uction an# Costs Economies of !cale Alternative T$eories of t$e %irm 1. b. a. Explain how* in economic theory* a monopolist would determine the price that would maximise profits. ">$ %iscuss whether firms in the real world set prices at profit9maximising levels. "14$ (#4'5)! (#4'P(!

) b.

a. ?sing appropriate examples* explain the difference between internal and external economies of scale. "1#$ %iscuss the view that the profit motive will always lead to a few large firms dominating the mar,et for each and every type of product. "1&$ (#-'P(!

/n )##1* there was a world9wide reduction in airline business. 1maller airlines with lower costs and cheaper discount fares suffered less than the high9cost larger airlines such as +ir France* 1wissair and Gufthansa.
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a. b.

Explain why* according to economic analysis* there are benefits from large scale organisations. "1)$ %iscuss to what extent the above extract concerning costs disproves that economic analysis. "1($ (#('P(!

a. Explain the relationship between diminishing marginal returns in the short run and rising average total cost in the short run. "1#$ b. %iscuss whether rising short run average costs limit the siEe of firms over time. "1&$ (#)'P(!

&.

Bany companies* recognising the increase in environmental awareness among consumers* now advertise that they have invested in research to ensure that their products are environmentally friendly. They hope that this will increase the demand for their products and lead to higher profits. a. Explain the difference between fixed and variable costs and suggest what might happen to the fixed and variable costs in the above companies in the short run. "1)$ %iscuss whether the above statement supports the view that it is the producer who dictates what happens in the mar,et with the sole aim of maximising profits. "1($ (##'P(!

b.

&ar'et !tructure 1 a. b Explain what factors affect price and output in an oligopolistic mar,et. "1#$ %iscuss whether this model of mar,et structure is the most appropriate to explain the behavior of firms in 1ingapore. "1&$ (#<'P(!

a Explain the type of mar,et structure in which each of the following is li,ely to operate in 1ingaporeH "1#$ i ii b 5aw,er food stalls and &9star luxury hotels.

%iscuss how a fall in mar,et demand for hotel accommodation is li,ely to affect both a &9star luxury hotel and other types of hotel. "1&$ (#&'P(!

a b

Explain what is meant by productive and allocative efficiency. "1)$ + firm should be encouraged to maximiEe profits because this ma,es the firm efficient. +ssess whether this argument is true for a firm operating in an imperfect mar,et. "1($ (#)'P(!

/n the ?@* train tic,ets may be obtained more cheaply if they are bought in advance. /n +ugust )### the railway companies 8ointly announced that these cheap tic,ets would be available only at ma8or stations. Passengers living near smaller stations would* therefore* have to pay the full cost of the tic,et. a b Explain what is meant by price discrimination and discuss whether this is an example of price discrimination. "1#$ /dentify the type of mar,et structure that enables companies to practice price discrimination* and discuss whether that mar,et structure is ever beneficial to consumers. "1&$ (#)'P(!

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a b

Explain how monopolies can discriminate between buyers by charging different prices for the same product or service. "1#$ %iscuss the circumstances in which a monopoly could be beneficial. "1&$ (#1'P(!

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a. b.

ontrast the features of perfect competition with those of oligopoly. "1#$ %iscuss why oligopoly is a more common mar,et structure than perfect competition. "1&$ (#1'P(!

/n 1==> two petrol companies* 1hell and Texaco* stated that they proposed to co9operate with each other to bring greater efficiency in a competitive mar,et. a b %istinguish between productive efficiency and allocative efficiency. "1#$ %iscuss what advantages and disadvantages might occur when large companies in the same industry co9operate with each other and the industry becomes more monopolistic. "1&$ (##'P(!

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Firms; pricing and output decisions depend on barriers to entry and the behaviour of competitors. a b Explain why barriers to entry are a ,ey determinant in firms; pricing decisions. "1#$ %iscuss the extent to which the behaviour of firms depends in reality on the actions of their competitors. "1&$ (#>'P)!

Ietailers in 1ingapore supply a wide range of services and products in a variety of mar,et structures.

a. b.

Explain the ,ey differences between oligopolistic competition and monopolistic competition."1#$ onsider different retailers in 1ingapore and discuss which of these two mar,et structures best explains their mar,et behavior. "1&$ (1#'P)!

1#

a.

Explain how the different features of monopolistic competition and oligopoly affect price and output determination in these mar,et structures. "1#$ Iecession will affect firms in different ways depending* for example* on what they produce and the mar,et structure in which they operate. %iscuss the li,ely effects of a recession on different firms. "1&$ (11'P)!

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/nternet or online shopping has grown rapidly in recent years. Gow barriers to entry have allowed a wide range of small specialised retail firms to mar,et their products on the internet. +t the same time economies of scale have led to a small number of large internet retail companies dominating the mar,et for other products. a Explain the existence of these two different types of online retailers and each mar,et structure best explain the mar,et behavior of each of them. (1#! /ncreased specialisation and low barriers to entry have an impact on consumers and existing producers. %iscuss how far the traditional analysis of these economic effects applies to the growth of online shopping. (1&! (1)'P)!

&ar'et %ailure

1.

With reference to examples* discuss whether there is a need to change the current policies adopted by the 1ingapore government to deal with mar,et failure caused by externalities. ")&$ (#4'5)! (#4'P(!

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%iscuss* with economic reasons to support your arguments* whether the 1ingapore government currently adopts the most appropriate economic policies in the provision of education. ")&$ (#<'P(!

a b

Explain why pollution and congestion caused by cars are li,ely to cause mar,et failure. "1#$ %iscuss whether the 1ingapore government currently adopts appropriate policies to overcome this mar,et failure. "1&$ (#&'P(!

/llustrating your answer with examples* assess the policies that the 1ingapore government currently adopts to achieve an efficient allocation of resources when externalities are present* and consider whether some new policies should be introduced. ")&$ (#-'P(!

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?se examples to distinguish between "1)$ i. ii. + private good and a public good* + social cost and a negative externality.

:/n Barch )### 5ong @ong;s air pollution index was the highest it had ever been. louds of thic, yellow smog remained a fixture of the city;s s,yline.; %iscuss what economic policies might be used to deal with this situation. "1($ (#)'P(!

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/n /ndonesia* during 1=== plantation companies cleared huge areas of the rainforest for rubber production and caused large fires* cho,ing people and

,illing some endangered species of animals. + state of emergency was declared as air pollution reached dangerous levels. %iscuss how economic analysis could find a solution to prevent these problems happening again. ")&$ (#1'P(!

/t was reported that in Egypt* private sector companies were being offered the chance to invest in the development and operation of airports and roads. a Explain and illustrate what is meant by "1)$ ii. +n externality* iii. + public good* and iv. + private benefit. b %iscuss whether the above concepts are of any use in explaining why it is often the government and not private enterprise that is responsible for the development and operation of airports and roads. "1($ (##'P(!

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a b

Explain why imperfect information and immobility of factors of production may lead to mar,et failure. "1#$ Evaluate the policies currently used by the 1ingapore government to correct these causes of mar,et failure. "1&$ (#>'P)!

0overnments around the world protect consumers against mar,et failure due to mar,et dominance. a b +nalyse* with supporting examples* how mar,et dominance might lead to mar,et failure. "1#$ +ssess the extent to which mar,et dominance* rather than any other potential mar,et failure* is the ma8or cause of government intervention in the mar,ets for goods and services within 1ingapore. "1&$ (#='P)!

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1#

a. b.

Explain why government intervention is advocated in the mar,ets both for public goods and for goods where externalities are present. "1)$ /n the ?@* entry to national museums and art galleries is free of charge and tic,ets to see the opera are heavily subsidised. /n contrast* in Capan* entry to national museums and art galleries comes at a high price and a tic,et to see opera is among the most expensive in the world. +ssess the economic case for these two different approaches. "1($(1#'P)!

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onsumers and producers are generally assumed by economists to be motivated by self9interest. a Explain how* according to economists* the pursuit of self9interest can help to address the problem of limited resources and unlimited wants. "1#$ +ssess whether the price mechanism will always allocate scarce resources in the most efficient manner for all goods and services in a mar,et economy. "1&$ (11'P)!

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?niversity education in 1ingapore and throughout the rest of the world is subsidised by national governments rather than left to mar,et forces. %uring )#1#* several governments announce that these subsidies would be cut* stating the need to reduce large fiscal budget deficits as the reason.

Explain why countries subsidise university education and discuss whether reductions in subsidies are 8ustified. ()&! (1)'P)!

(ational )ncome Accountin*+ ,ivin* !tan#ar#s 1. /t was reported in October )##1* that industry in 1ingapore was facing a sharp recession* 0%P grew by 1#2 in )###* but in )##1* it was predicted to decline. The 1ingapore hamber of ommerce petitioned the government for reductions in personal and corporate tax rates.

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a. b.

Explain what might happen to national income if a government were to reduce personal and corporate tax rates. "1#$ %iscuss whether the decline in 0%P mentioned above necessarily meant that the standard of living for the average person in 1ingapore also sharply declined. "1&$ (#('P(!

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/t was reported that in the last 1# years there has been an improvement in the standard of living of the average person in 6amibia. a. /f you were as,ed as an economist to show that the average person in 6amibia is better off than ten years ago* explain what information you would need. "1)$ omment on the difficulties of comparing living standards between countries. "1($ (#1'P(!

b.

Economic measures of the 1ingapore economy for )##4 indicate that 0%P was J)-( billion. The current account on the balance of payments was J&= billion in surplus. a b Explain how you might use 0%P and balance of payments data to measure the performance of an economy. "1)$ +ssess whether these economic indicators are the best measures of economic performance and standard of living in 1ingapore. "1($ (#='P)!

a b

5ow do economists compare the economic performance of different countries. (1#! +ssess the extent to which 1ingapore;s economic performance is the main determinant of its population;s standard of living. (1&! (1)'P)!

T$eory of )ncome an# Employment

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+ssume there is an open economy with a government sector. Explain the conditions for e3uilibrium in the circular flow in such an economy. "1#$ %iscuss how an increase in in8ections may affect the e3uilibrium level of national income. "1&$ (#)'P(!

%iscuss the conse3uences for an economy of an increase in interest rates. ")&$ (#)'P(!

%iscuss the effect that a rise in interest rates in a country might have on consumers* producers and international financial speculators. ")&$ (#1'P(!

%iscuss how a significant fall in the level of interest rates might affect the components of aggregate demand. ")&$ (##'P(!

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:+ rise in the price of a ma8or commodity such as oil benefits the producing country in the short run but causes serious problems in the oil9importing countries. /n the long run everyone is worse off.; a c. Explain the possible short run conse3uences of a rise in oil prices. "1($ %iscuss the validity of the above statement with regard to the long run. "1)$ (##'P(!

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Bany economists argue that achieving a low and stable rate of inflation is the single most important macro9economic ob8ective for governments.

a. b.

Explain how a high rate of inflation can be caused. "1#$ %iscuss the view that a government;s fiscal and monetary policies should be focused primarily on achieving a low and stable rate of

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inflation. (51#=!

"1&$

a b

Explain the process whereby an increase in government expenditure can lead to a bigger change in national income. "1#$ %iscuss the extent to which conflicts in government macroeconomic ob8ectives limit the scope for the use of fiscal policy in any economy. "1&$ (11'P)!

&acroeconomic Problems an# Policies 1 a :To be considered successful* an economy needs to achieve low unemployment* low inflation and stable economic growth.; Explain this statement. "1)$ b %iscuss whether fiscal policy is the most effective way for 1ingapore to sustain a successful economy. "1($ (#4'5)! (#4'P(!

Explain how fiscal and monetary policy can be used to influence the circular flow of income. "1)$ a. the b. %iscuss whether effective supply9side policies are the best way for 1ingapore government to achieve long term economic growth and stability. "1($ (#4'51!

/n the -th 3uarter of )##- 1ingapore;s unemployment rate rose to (.42. %iscuss whether supply9side policies are the best way of achieving full employment in 1ingapore. ")&$ (#<'P(!

%iscuss the possible impact of a world9wide recession on 1ingapore and the policy options that the government could adopt to reduce the most harmful effects of this impact. ")&$ (#&'P(!

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a.

Explain what determines the siEe of the national income multiplier. "1#$

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b.

To what extent might other macroeconomic problems result from the use of fiscal policy that is designed to reduce unemployment in an economy. "1&$ (#-'P(!

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a. b.

Explain how changes in the money supply might affect the general level of prices in an economy. "1#$ %iscuss the view that monetary policy is the best method of controlling inflation in an economy. "1&$ (#-'P(!

Explain the ,ey macro9economic aims of the 1ingapore government* and discuss which policy measures might best be used to overcome the most significant macro9economic problem that is currently being experienced by the 1ingapore economy. ")&$ (#('P(!

b.

@eynes;s solution to unemployment was higher public spending which through the multiplier process would generate income and more 8obs. a. b. Explain how this solution wor,s. "1)$ +re there any other solutions to the problem of unemployment. "1($ (#1'P(!

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a. b.

Explain what causes inflation. "1#$ %iscuss whether a low rate of inflation should be the economic priority of a government. "1&$ (#1'P(!

1#

%iscuss the economic information about another country that would be useful to a company which is considering exporting its products to that country. ")&$ (##'P(!

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%iscuss the most appropriate policies that a government could adopt to encourage both actual and potential economic growth. ")&$ (#>'P)!

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1)

%iscuss the relative significance of the multiplier* the price elasticities of demand for imports and exports* and crowding K out influencing macroeconomic policy decisions. ")&$ (#>'P)!

1(

The relative importance of the components of the circular flow of income for a small and open economy* such as 1ingapore* is li,ely to be different from a large and less open economy* such as the ?1+.

a. b.

Explain this statement. "1#$ +ssess whether a change in the external value of its currency is more li,ely to have a larger impact on 1ingapore or the ?1+. "1&$ (#='P)!

1-

The recent worldwide recession caused many governments to re9assess their use of fiscal policy in order to stimulate their stagnating economies. a. b. Explain what would reduce the effectiveness of fiscal policy as a stimulus to the 1ingapore economy. "1#$ +ssess the alternative policies that might be more appropriate in managing the 1ingapore economy when faced with a worldwide recession. "1&$ (1#'P)!

1&

When there are large increases in the prices of oil and other primary products* they are usually expected to lead to rising inflation throughout the world;s economies. %iscuss the extent to which these factors are li,ely to affect the rate of inflation in 1ingapore. ")&$

1<

/n the study of macroeconomics* investment can ta,e many forms including foreign direct investment* fixed capital investment and investment in human capital.

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a b 14

Explain what is meant by these different types of investment. "1#$ %iscuss how far supply9side policies can be used to stimulate these different types of investment. "1&$ (11'P)!

0overnments generally face trade9offs between different macroeconomic policy ob8ectives. %iscuss how far a government macroeconomic policy decisions when faced with these trade9offs are affected by the extent to which the economy is open. ()&! (1)'P)!

-alance of Payments an# Exc$an*e .ate Problems an# Policies relate# to t$e External Economy 1 b. a. Explain the potential causes of a balance of payments deficit on current account. "1#$ %iscuss which measures* if any* a government should adopt when confronted with a current account deficit. "1&$ (#4'5)! (#4'P(!

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/n October )##&* the Bonetary +uthority of 1ingapore stated that its policy of allowing the 1ingapore dollar to strengthen against a bas,et of currencies would be maintained. a. b. ?sing a diagram* explain what might cause a country;s exchange rate to appreciate in a floating exchange rate system. "1#$ (#<'P(! %iscuss the extent to which problems are li,ely to result from an appreciation of 1ingapore;s exchange rate. "1&$ (#<'P(!

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%iscuss how the 1ingapore government might use the concepts of price elasticity of demand and income elasticity of demand to determine the impact

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of a fall in exchange rates and a rise in worldwide incomes on the current account of the 1ingapore balance of payments. ")&$ (#&'P(!

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Bany countries need to import raw materials and component parts* which become more expensive if the value of their currency falls against the currencies of other countries. To what extent have the main macroeconomic problems faced by 1ingapore in recent years been caused by a wea,ening of the exchange rate. ")&$ (#-'P(!

&.

a. b

What might cause an appreciation of a floating exchange rate. "1#$ %iscuss whether an appreciation of a country;s exchange rate will always be beneficial to that country. "1&$ (#1'P(!

<.

When societies are attempting to solve the central economic problem by improving the standard of living of their citiEens at a rapid rate* they are always inclined to try to do it behind protectionist trade barriers.

a.

?sing the concept of opportunity cost* explain the central economic problem that all societies have to solve. "1#$ %iscuss the view that the reasons for protectionism can never outweigh the benefits of free trade. "1&$ (51#=!

b.

+ government;s macroeconomic aims are low inflation* low unemployment* balance of payments e3uilibrium and economic growth. Which of these aims do you consider most significant for 1ingapore and why. ")&$ (#)'P(! %uring )##= the Dan, of England engaged in what is ,nown as :3uantitative easing; by pumping more than L)## billion into the economy. Iecord low levels of interest rates have also been maintained within the ?@ economy. Muantitative easing and low interest rates were also adopted by the ?1.

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Explain why exchange rates rather than interest rates are the preferred choice as the instrument of monetary policy in 1ingapore. (1#!

%iscuss the li,ely impact on the 1ingapore economy of 3uantitative easing and low interest rate in the ?1 and ?@. (1&! (1)'P)!

)nternational Tra#e an# /lobalisation 1. %iscuss whether 1ingapore is among the economies that have most to gain from globaliEation. ")&$ (#4'5)! (#4'P(!

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For many years the ?1+ did not conduct normal trading relations with Aietnam. /n )##1* a trade agreement was signed between the two countries which reduced tariffs* encouraged foreign investment and opened up export mar,ets.

a.

5ow does the theory of comparative advantage explain why a developed country such as the ?1+ might wish to trade with a developing country such as Aietnam. "1)$ %iscuss what effect such a trade agreement might have on the economies of the participating countries. "1($ (#('P(!

b.

(.

1pecialisation and international trade have meant that some countries en8oy higher living standards than others. a. b. Explain why specialiEation occurs. "1)$ %iscuss whether protection offers any advantages over specialiEation. "1($ (#)'P(!

a. b.

Explain the theory of comparative advantage. "1#$ To what extent does this theory explain the pattern of trade between 1ingapore and the rest of the world. "1&$ (##'P(!

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a b.

Explain the determinants of the pattern of trade between 1ingapore and the rest of the world. "1#$ %iscuss whether the 1ingapore government should change its policies for managing the balance of payments. "1&$ (#>'P)!

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+n economist stated :The trend towards globalisation leaves no room for protectionism.; a. b. +ccount for the trend towards globalisation. "1#$ %iscuss whether you agree with the economist;s view. "1&$ (#='P)!

There is a general consensus among economists that protectionism is a bad thing. a. b. Explain why protectionism exists. ">$

+ssess the extent to which the 1ingapore government;s approach to international trade may need to be ad8usted in response to a growth in worldwide protectionism. "14$ (1#'P)!

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:The 1/ngapore economy is open to the world* in trade and investment. This is both a matter of policy and necessity because of our siEe and limited resources. /n )##>* our trade to 0%P ratio was (<#2* the highest in the world.; (Binistry of Trade and /ndustry* 1ingapore )##=! %iscuss whether the openness of the economy is beneficial or harmful to the standard of living in 1ingapore. ")&$ (11'P)!

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