Macroeconomics Report: Analysis of Singapore's Economic Conditions

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Added on 2019/09/13

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This macroeconomics report analyzes the economic conditions of Singapore, focusing on two articles that discuss inflation and recession. The report examines key economic concepts such as Real Gross Domestic Product (RGDP), inflation, cost-push inflation, recession, aggregate demand and supply, unemployment, and expansionary fiscal policy. It provides an economic analysis of the factors contributing to price determination, the impact of falling oil prices, and the effects of government policies. The analysis includes diagrams illustrating the determination of price, the impact on the retail sector, and the effects of expansionary fiscal policy. The report concludes by summarizing the key findings related to Singapore's economic performance, including the impact of global demand, government interventions, and the looming threat of a technical recession.

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MACRO ECONOMICS 1
Table of Contents
Summary of the Article 1................................................................................................................ 2
Economics Concepts related to article.............................................................................................2
Economics Analysis.........................................................................................................................4
Conclusion....................................................................................................................................... 9
Summary of the Article 2.............................................................................................................. 10
Economics Concepts related to article...........................................................................................10
Economics Analysis.......................................................................................................................12
Conclusion..................................................................................................................................... 17

MACRO ECONOMICS 2
Article 1)
Singapore consumer prices rise for 2nd straight month in January on
recovering oil prices.
Summary of the article 1
Singapore oil prices are recovering from a recession period and gradually showing positive
inflation in the month of January 2017. According to figures released by the Singapore
department of statistics on February 23 2017. The base for measuring the inflation is CPI:
consumer price index which rose 0.6 percent from last month compared with the same month a
year ago. This scenario is seen after 2 years of recession from November 2014 to October 2016,
and a flat CPI in November. Finally, in December this data turned positive and increased 0.2
percent gradually. Recession in the oil market and car market ultimately affect the whole
economy and main drivers behind that long session of negative inflation. In the oil market, a
sudden increase in services and cost of oil-related items leads to increase the price of oil in
January. Overall inflation is predictable to pick up to 0.5 to 1.5 % this year, from negative 0.5 %
in 2016. This mainly reflects the positive contribution of energy-related components as well as
some administrative price increases.
Economics Concepts related to article
Real gross domestic products: during a given period of time, the quality of all the products
produce inside the border of a nation is known as RGDP.
Inflation: a rate at which prices of goods and services increase consistently, as inflation
prevailing in an economy, every currency an individual holds can buy small percent of goods and
services he can buy before.

MACRO ECONOMICS 3
Cost-push inflation: when the prices of inputs like labor, raw material, etc. lead to increase the
cost of production; as a result price of that product increases as well, known as cost-push
inflation.
Recession: consistent fall in prices and output in two successive quarters which leads to falling
in RGDP and a period of temporary decline of trade and production activities.
Aggregate demand: at a given period of time, the final demand of goods and services from all
the individuals in an economy is referred as aggregate demand.
Aggregate supply: during a specific period of time, the total quantity of goods and services an
economy is planning to supply is refers as aggregate supply.
Unemployment – workforce those are willing to work and looking for work but not able to find
any work are refers as unemployed and percentage of them with reference to total population is
unemployment.
Expansionary fiscal policy: It is a policy by the government which is adopted so that the
money supply in the economy gets increased and the rate of inflation is raised. This is done by
decreasing the rate of taxes and increasing the expenditure of the government (Hansen, 2013).
Thus, this helps in fighting the recessionary pressures of the economy. When the taxes are
reduced, the disposable income of the people gets increased. Thus they spend more and consume
more. When the goods and services are invested into, and the people spend more, the GDP of the
country gets improved.
Full employment: It is a condition where all the people who can work and they are willing to
work are employed in the economy at a particular time (Beveridge, 2014).

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MACRO ECONOMICS 4
Economics Analysis
Determination of price in the economy
At a given period of time, the final demand of goods and services from all the individuals in an
economy is referred as aggregate demand. Aggregate demand is a combination of consumption,
investment , government and net export.
AD = C+ I + G + (X-M)
Where,
AD is aggregate demand
C is consumption
I is investment
G is government expenditure
X is export
M is import
During a specific period of time, the total amount of products and services an economy is
planning to supply is refers as aggregate supply. Aggregate supply is different in the long and
short run, in short run aggregate supply is upward sloping because an economy is below full

MACRO ECONOMICS 5
employment and able to achieve full employment gradually. On the other hand, in long run
aggregate supply is vertical, and economy ultimately reaches full employment level. In an
economy, the price of all the goods and services are determined by the intersection of aggregate
demand and aggregate supply. As shown in below diagram:
Determination of price by intersection of AD & AS
In the above diagram, the prices of goods and services are determined at point ‘e’ when the
aggregate demand (AD) curve intersects aggregate demand (AS) curve. This is the level at which
the optimal level of price and output of the economy can be determined.
Due to fall in oil prices in, the whole economy gets affected, Recession in the oil market, and car
market ultimately affects the whole economy and main drivers behind that long session of
negative inflation.

MACRO ECONOMICS 6
Fall in RGDP & Output, due to fall in oil prices
In the above diagram, due to fall in oil prices, short run supply curve shift leftward, which leads
to fall in RGDP and output. As a result, income of people fall, so does the aggregate demand of
other goods and services as well. Thus, the scenario continue and turn into a recession.
P↓ → AS↓→RGDP↓→Y↓→AD↓
The retail sector of Singapore is negatively impact as unemployment increased in Singapore's.
Thus, the purchasing power of Singapore citizens shrink as there income reduced. Aggregate
demand and consumption will also fall, and then the RGDP will decline. As shown in the below
diagram:

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MACRO ECONOMICS 7
Retail sector negatively affected
In the above diagram, due to falling in aggregate demand of goods and services from AD (1) to
AD (2). Thus in short run, prices fall from P(1) to P(2), and Output falls from RGDP(1) to
RGDP(2).
Due to fall in income of consumer
AD ↓=C ↓+ I ↓+G+ X −M
Here
AD↓: Aggregate demand shift leftward.
C↓: Consumption falls
I↓: Investment falls
P↓: leads to Deflation

MACRO ECONOMICS 8
RGDP↓: show Recession and High Unemployment
To rectify the above problem, an expansionary fiscal policy was needed to stimulate the
economic growth, each Asian country was under pressure, as central bank reduced interest rates
to resort the situation, government are compel to do expansionary fiscal policy. Global demand
affects Singapore the most as it is more exposed among all Asia countries. Government provide
tax rebates to SME and access to more than S$2 billion of loans, industrial transformation plan
supported financially by S$4.5 billion and for stimulate worker’s wages S$770 million a year
spend by Government (https://www.bloomberg.com/.../2016..). The government boosting the
aggregate demand by spending on infrastructure which ultimately creates jobs and wages reduce
the unemployment.
At the same time, the government support individuals and company by reducing corporate and
personal income. After reducing corporate tax company have benefit of grabbing more marginal
of profit.
As a result, aggregate demand increases and so did the output, after the policy implication by the
government, from December onwards price, start rising upwards and Singapore consumer prices
rise for 2nd straight month in January on recovering oil prices. As shown in the diagram:

MACRO ECONOMICS 9
Singapore government apply expansionary fiscal policy
In the above diagram, an economy is not at the equilibrium level and is operating below full
employment, the above situation arises. Due to this government use expansionary fiscal policy. As
a result, In long-run, an aggregate increase from AD(1) to AD(2) and Real GDP increases from
RGDP(1) to RGDP(2). Thus, as a resulting economy attains its full employment level, and
gradually prices of goods and services s start rising from P (1) to P (2).
AD ↑=C + I +G ↑+ X −M
Here
AD↑: aggregate demand shift rightward
G↑: Government increases

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MACRO ECONOMICS 10
With the expansionary policy, the economy of a country grows in terms of GDP, increase in the
rate of employment, etc. With the rise in people getting absorbed in the labor market, the
employment rate will rise, and thus, the full employment will be reached after a certain point of
time. When all the people who are able to work and who want to work are earning in the economy,
then the money supply in the country will rise. They will spend more and invest more. With the
increase in investment, the rate of interest is likely to fall, and thus, Fed will not be able to increase
these rates.
Conclusion
According to figures released by the Singapore department of statistics on February 23,
2017. The inflation rose 0.6 percent from last month compared with the same month a year
ago. This situation arises because there is a recession in the economy. As a result price of goods
and services falls and output, as well as income level, decreases in an economy. In recession, an
expansionary fiscal policy was needed to stimulate the economic growth, each Asian country
was under pressure, as central bank reduced interest rates to resort the situation, government are
compel to do expansionary fiscal policy. Global demand affects Singapore the most as it is more
exposed among all Asia countries. Government provide tax rebates to SME and access to more
than S$2 billion of loans, industrial transformation plan supported financially by S$4.5 billion
and for stimulate worker’s wages S$770 million a year spend by Government (The government
boosting the aggregate demand by spending on infrastructure which ultimately creates jobs and
wages reduce the unemployment. At the same time, the government support individuals and
company by reducing corporate and personal income. After reducing corporate tax company
have benefit of grabbing more marginal of profit. Thus, by giving less income in tax payment,

MACRO ECONOMICS 11
individual can spend more and invest more, which leads to increase aggregate demand as well as
output and stimulate economic growth.
Article 2)
Technical recession looms for Singapore
Summary of Article
In 2016, Singapore economy faced recession in Technical looms which were effect of United
States election's result. OCBC economists said this is a result of weak global growth and rising
market volatility. Thus, in 2016 the Singapore economy shrank 4.1 percent in July to September
period as compared with the previous quarter (Min, C. 2017)
As the definition refers, consistent fall in prices and output in two successive quarters which
leads to falling in RGDP is known as a recession. The Same scenario happened in Singapore,
occurs due to another quarter of contraction. As a result, 2016 become the slowest year for
economy growth with 1 to 2 percent increase in RGDP. US new policies by president Donald
Trump may hinder small open economy of Singapore, which has minor contribution in global
trade and facing slowdown as well. At the same time, the US dollar has appreciated aginst Asian

MACRO ECONOMICS 12
currencies; US inflation was unexpected, huge government spendings resulted into inflation in
the US. As a result, investors are expecting higher interest rate next year for stabilizing economy.
Economics Concepts related to article
Real gross domestic products: during a given period of time, the quantity of all the products
and services produce within the periphery of a nation is known as RGDP
Recession: consistent fall in prices and output in two successive quarters which leads to falling
in RGDP and a period of temporary decline of trade and production activities.
Aggregate demand: at a given period of time, the final demand of goods and services from all
the individuals in an economy is referred as aggregate demand.
Aggregate supply: during a specific period of time, the total quantity of goods and services an
economy is planning to supply is refers as aggregate supply.
Unemployment – workforce those are willing to work and looking for work but not able to find
any work are refers as unemployed and percentage of them with reference to total population is
unemployment.
Expansionary fiscal policy: It is a policy by the government which is adopted so that the
money supply in the economy gets increased and the rate of inflation is raised. This is done by
decreasing the rate of taxes and increasing the expenditure of the government (Hansen, 2013).
Thus, this helps in fighting the recessionary pressures of the economy. When the taxes are
reduced, the disposable income of the people gets increased. Thus they spend more and consume

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MACRO ECONOMICS 13
more. When the goods and services are invested into, and the people spend more, the GDP of the
country gets improved.
The rate of interest: It is the amount charged by a lender to a borrower against the principle
amount for the use of assets (Holston, 2017). When this rate rises, the borrowers are able to
borrow less money because they need to pay more interest on the loans. When they reduce a
number of loans taken, they are able to invest less, and they consume less. Thus, the supply of
money in the economy gets reduced, and the rate of inflation falls.
Exchange rate: The value of one currency to convert it to another is called as exchange rate
(Cavoli, 2014).
Currency appreciation and depreciation: The currency gets appreciated when the value of
one currency increases in terms of another currency. For example, the Canadian dollar
appreciates in relation to euro i.e. CAD/EUR appreciates, then earlier, 1EUR=1.5 CAD and after
appreciation, 1EUR=1.4CAD. For purchasing 1 EUR, the Canadians will have to pay fewer
dollars.
On the other hand, the currency gets depreciated when the value of one currency decreases in
terms of another currency. For example, the Canadian dollar depreciates in relation to euro i.e.
CAD/EUR depreciates, then earlier, 1EUR=1.5 CAD and after appreciation, 1EUR=1.6CAD.
For purchasing 1 EUR, the Canadians will have to pay more dollars.
Economics Analysis
United States election’s resulted into Singapore Technical recession looms. Recession in
technical market ultimately affects the whole economy and main drivers behind that long session
of negative inflation. Singapore's total employment rate will decreases and unemployment will

MACRO ECONOMICS 14
rise. Thus, retail sector negatively impact. as a result people's income is shrink, so does the
purchasing power decreases, consumption, and aggregate demand will fall, and then the real
GDP will decline As shown in the below diagram:
Retail sector negatively affected
In the above diagram, due to falling in aggregate demand of goods and services from AD (1) to
AD (2). Thus in short run, prices fall from P(1) to P(2), and Output falls from RGDP(1) to
RGDP(2).
Due to fall in income of consumer
AD ↓=C ↓+ I ↓+G+ X ↓−M
Here
AD↓: Aggregate demand shift leftward.

MACRO ECONOMICS 15
C↓: Consumption falls
I↓: Investment falls
P↓: leads to Deflation
X↓: Imports fall
RGDP↓: show Recession and High Unemployment
However, recession and expansion is a part of business cycle, whichs shows the fluctuation in an
economy over a period of time. Expansion is basically a part of economic growth with higher
RGDP, income and employment. Whereas, reccession is phase of contraction with falling RGDP and
all real diagram. Diagramatically, Business cycle can be represented below:
Flucuation in economic activites
In the above diagram, flucuation in economics activites are shown, which shows expansion is
followed by recession and vice-versa. Thus, if an economy is facing recession will turn in expansion
with some excessive speculative activity.

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MACRO ECONOMICS 16
Meanwhile, the US dollar has appreciated significantly aginst Asin currencies; US inflation was
unexpected, huge government spendings leads to inflation in the US. As a result, investors are
expecting higher interest rate next year for stabilizing economy. As a result, there will be capital
outflow from Singapore. Thus, previous one dollar could buy Singdollar (S$) 1.39 has risen up to
S$1.42 on November 8.
US government spendings leads to inflation
US inflation was unexpected, huge government spendings leads to inflation in the US , When the
dollar appreciates, it means that singapore depreciates. When that happens singapore exports
increase as their products are cheaper in the US market. This is the main advantage. All other
advantages come from this like increase in employment, foreign exchange, appreciation of the
ruppee and many more.

MACRO ECONOMICS 17
AD ↑=C + I +G ↑+ X ↓−M ↑
Here
AD↑: aggregate demand shift rightward
G↑: Government expenditure increases
X↓: Export decreases
M↑: Import Increases
Due to recession in Singapore, people would expect Singapore interest rates to fall compared to
other countries. At the same time, the US dollar has appreciated significantly aginst Asin
currencies. As a result, investors are expecting higher interest rate next year for stabilizing prices
in economy. This would not beneficial for US citizens to save more. Thus, investors are not
likely to invest in the Singapore and more likely to invest in countries with higher interest rates.
If people move money out of the Singapore, the demand for Singapore dollar falls and also leads
to falling in the value of Singapore dollar. If a country goes into recession, investors may lose
confidence. A recession will mean government have more debt and less money to spend on
economy betterment as a result they lose confidence in domestic country. But, investors can also
retain confidence in a currency, even if an economy is in recession if government stimulate some
expansionary fiscal policy.
To rectify the above situation, an expansionary fiscal policy was needed to stimulate the
economic growth, each Asian country was under pressure, as central bank reduced interest rates
to resort the situation, government are compel to do expansionary fiscal policy. Global demand

MACRO ECONOMICS 18
affects Singapore the most as it is more exposed among all Asia countries. As a result, aggregate
demand increases and so did the output, after the policy implication by the government, price
start rising upwards and Singapore coming out of this situation. As shown in the diagram:
Singapore government apply Expansionary fiscal policy
In the above diagram, an economy is not at an equilibrium level and is operating below full
employment, the above situation arises. Due to this government use expansionary fiscal policy.
As a result, In long-run, an aggregate increase from AD(1) to AD(2) and Real GDP increases
from RGDP(1) to RGDP(2). Thus, as a resulting economy attains its full employment level, and
gradually prices of goods and services s start rising from P (1) to P (2).
AD ↑=C + I +G ↑+ X −M

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MACRO ECONOMICS 19
Here
AD↑: aggregate demand shift rightward
G↑: Government expenditure increases
As the RGDP increase, government regains the confidence of citizens of Singapore. As a result,
investment increases in the economy and country recovers from recession.
Conclusion
Consistent fall in prices and output in two successive quarters in Technical industries leads to a
recession in Singapore. At the same time, US dollar has strengthened significantly against Asian
currencies. As a result, 2016 become the slowest year for economy growth with 1 to 2 percent
increase in RGDP. Singapore investors were loosing confidence in Singapore government bonds
and want to invest in the US. This is fuelling worries for the sinapore government as this situation
will flow funds out of Singapore economy to the US. With the expansionary policy, the economy of
a country grows in terms of GDP, increase in the rate of employment, etc. With the rise people
regain confidence in Singapore dollar. Thus investment rises in Singapore, as a result, the
employment rate will rise, and thus, the full employment will be reached after a certain point of
time. When all the people who are able to work and who want to work are earning in the economy,
then the money supply in the country will rise. They will spend more and invest more.

MACRO ECONOMICS 20
References
Afonso, G., & Lagos, R. (2015). Trade dynamics in the market for federal funds. Econometrica, 83
(1), 263-313.
Beveridge, W. H. (2014). Full Employment in a Free Society (Works of William H. Beveridge): A
Report (Vol. 6).
Hansen, A. H. (2013). Fiscal policy & business cycles. Routledge.
Holston, K., Laubach, T., & Williams, J. C. (2017). Measuring the natural rate of interest:
International trends and determinants. Journal of International Economics.
https://www.bloomberg.com/.../2016.../singapore-plans-expansionary-budget-as-grow.
Min, C. (2017). 'Technical recession looms' for Singapore. The Straits Times. from
http://www.straitstimes.com/business/economy/technical-recession-looms-for-spore
Moran, T. (2014). The United States Budget Deficit and Social Security Games.
Moschella, M. (2015). Currency wars in the advanced world: Resisting appreciation at a time of
change in central banking monetary consensus. Review of International Political Economy, 22(1),
134-161.
Routledge. Import competition in the United States. The American Economic Review, 103(6),
2121-2168.

MACRO ECONOMICS 21
Weale, M., Blake, A., Christodoulakis, N., Meade, J. E., & Vines, D. (2015). Macroeconomic
Policy: Inflation, Wealth and the Exchange Rate (Vol. 8). Routledge.
Both of the articles are from straitstimes.com
Topic of article 1: Singapore consumer prices rise for 2nd straight month in January on
recovering oil prices
http://www.straitstimes.com/business/economy/singapore-consumer-prices-rise-for-2nd-straight-
month-in-january-on-recovering-oil
Topic of article 2: Technical recession looms' for Singapore
http://www.straitstimes.com/business/economy/technical-recession-looms-for-spore.