Fiscal Policy Analysis: Singapore in 2020, ECO 20004 Assignment

This assignment analyzes fiscal policy, differentiating between discretionary fiscal policy and automatic stabilizers. It explores the application of expansionary fiscal policy in Singapore during 2020, highlighting increased government expenditure, care schemes, and support packages implemented to mitigate the economic impact of the COVID-19 pandemic. The analysis explains how these measures aim to boost aggregate demand, stabilize the financial market, and reduce unemployment. The assignment further discusses three advantages of fiscal policy in Singapore, including the decline in bankruptcy rates, maintaining or increasing consumption, and solving unemployment issues. The solution references sources like the Singapore Government Agency Website, The Strait Times, and CNA newsletters to support its arguments.

Sarawak Campus
Faculty of Business, Design and Arts
Higher Education Division
Group Assignment: Fiscal Policy
ECO 20004
Macroeconomic Policy
Semester 1, 2020

1. Explain (i) discretionary fiscal policy, and
(ii) automatic stabilizer
Discretionary fiscal policy is a type of transform in government spending or taxes. They are the
budget process and the tax code. Discretionary fiscal policy refers to the sudden imposition of new
taxes or changes in their rates, or on how government spend their revenue. Discretionary fiscal
policy consists of neutral fiscal policy, expansionary fiscal policy and contractionary fiscal policy.
The discretionary fiscal policy can figure out by the aggregate demand (AD), thus increase
aggregate demand and output. Discretionary fiscal policy will benefit in narrow the deflation gap.
Deflationary gap led to a recession in output, income and employment rate as well as persistent fall
in prices. Discretionary fiscal policy differs from automatic fiscal stabilizers.
Automatic stabilizers are fiscal policy which able to equalize the economic activity’s undulation
without timely and additional authorization by policymakers and government actions. It
automatically restructures transfer payments and tax rate which object to stabilize spending,
income, and consumption over the business cycle.
In the short-term or long-term economic decline, automatic stabilizers help the overall
economy by stimulating aggregate demand. During a recession, government spending increases
automatically due to public claim unemployment benefits. When the economy back to equilibrium,
automatic stabilizer will turn-off and phase-down.
200 words

1. Explain how fiscal policy is used in Singapore in 2020.
According to Tang (2020), Singapore government use expansionary fiscal policy by increasing
government expenditure. Government distribute funds to assist the company to get through
worldwide uncertainties and the speedy coronavirus outbreak pushes Singapore's Budget 2020 into
its unprecedented deficit. Singapore implements care scheme and support packages to help
business and household to reduce the burden during Corona-Virus outbreak. During economic
uncertainty period, Singapore government provide care and support package to adult Singaporean
which aim to keeping the ability of consumption of the consumer.
Besides, Singapore government contribute stabilisation and support packages to the business
entities and the employees. It will provide assist to enterprises and help employees stay employed.
All employees can receive wage support from business entity. In business entities’ perspective, it
directly reduces wage expenses of the business to help them retain their workers. Government
expect this support may control the unemployment rate of Singapore. The government also offer
one month rental-free to business firm tenants (Leong, 2020). It helps to reduce the burden of huge
expenses for the business entities so that they can continue to supply and normal operate in this
particular situation. This help to hold the supply of certain goods and services. Those packages
provided with the aim to keeping the ability of consumption of the consumer and there will have a
rotation of spending between the consumers, business entities and government.
Due to the global uncertainty, government will increase their spending to boost economic
activities and avoid demand decline. Expansionary fiscal policy causes an increase in money supply
and it will lead to an increase in AD curve. Government increase their spending will leave more
disposable income and cause saving and consumption to increase. Aggregate demand (AD) will shift
to the right. Increases in AD curve will cause an increase in aggregate output and price level in the
business cycle. In the other words, Real GDP will raise and it also inspire aggregate supply (AS) shift
to the right. Due to the market needs increase in the output, SRAS curve affected by the quantity
and quality of the labor and capital increase. Thus, it inspires AS shift to the right. Changes in short-
run aggregate supply will drop the price level while the real GDP increase.
Expansionary fiscal policy implementation in Singapore is effective for business entities and
Singaporean. It managed to solve their unemployment, stabilize the financial market and lower the
inflations rate.
400 words

2. Discuss three advantages of fiscal policy in Singapore.
The first benefit for expansionary fiscal policy in Singapore is decline the rate of bankruptcy.
The Singapore government has applied the stabilization and support package which is great assist to
those enterprises during this Covid-19 outbreak. This package has offer corporate tax rebate and
rental waive to reduce their financial burden.
Secondly, power of consumption can be maintaining or Increase which mean the AD curve
shift to the right. This is because Singapore government apply the stabilization and support package
to provide one-off wages to local workers and care and support package apply to provide finance
support to all Singaporean. As Singaporean receive support from government, they will make a
purchase and it will lead the consumption increase or maintain.
Lastly, Singapore government could solve the issue of unemployment rate and boost the
economic growth when there is an increase in consumption of consumer. This is because the
factories must increase production in order to supply goods for consumer, so it will lead to increase
in output shift and keep hired worker in order to satisfy the demand of the market. Therefore,
unemployed rate could be decrease or maintain during a recession.
192 words

Reference
A Singapore Government Agency Website, 2020, ‘Budget 2020: Our Unity Budget’, Government of
Singapore, viewed 28 April 2020, <https://www.singaporebudget.gov.sg/budget_2020/budget-
measures/budget-booklet/budget-booklet-eng>.
Leong, 2020, Bigger rent waiver for industrial, office, agricultural tenants: Heng Swee Keat, The Strait
Time, viewed 6 May 2020, <https://www.straitstimes.com/politics/bigger-rent-waiver-for-industrial-
office-agricultural-tenants-heng-swee-keat>.
Tang, 2020, Budget 2020: ‘More expansionary’ budget to result in biggest estimated overall deficit
since 2009, CNA newsletters, viewed 2 May 2020,
<https://www.channelnewsasia.com/news/singapore/budget-2020-more-expansionary-budget-to-
result-in-biggest-12446318>.