Macroeconomics Report: Singapore's Economic Analysis and Policies

This report provides a macroeconomic analysis of Singapore's economy, examining two articles focusing on inflation and the threat of a technical recession. The analysis delves into key economic concepts such as real GDP, inflation, cost-push inflation, recession, aggregate demand and supply, unemployment, and expansionary fiscal policy. The report applies these concepts to the articles, discussing the impact of oil price recovery, the government's fiscal responses, and the factors contributing to the potential recession. It explores the determination of prices through aggregate demand and supply, the effects of falling oil prices, and the role of expansionary fiscal policy in stimulating economic growth and mitigating recessionary pressures. The report highlights the government's strategies, including tax rebates, infrastructure spending, and support for businesses, to boost aggregate demand and employment. It concludes by summarizing the economic challenges and the government's proactive measures to stabilize and stimulate the Singaporean economy. The report also discusses how US policies and global demand influence Singapore's economic outlook.

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Table of Contents
Summary of the article 1.............................................................................................................................3
Economics Concepts related to article.......................................................................................................3
Economics Analysis......................................................................................................................................5
Conclusion..................................................................................................................................................11
Summary of Article....................................................................................................................................13
Economics Concepts related to article.....................................................................................................14
Economics Analysis....................................................................................................................................16
Conclusion..................................................................................................................................................21
Topic of article 1: Singapore consumer prices rise for 2nd straight month in January on recovering
oil prices......................................................................................................................................................23
Topic of article 2: Technical recession looms' for Singapore................................................................23

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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.

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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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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
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

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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.

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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. ) (THIS PARAGRAPH NEED TO BE EXTRACTED
FROM THE ARTICLE)
(AND THE DIAGRAM ABOVE THERE'S ERROR , AD DO NOT NEED TO SHIFT
AND SRAS SHIFT RIGHT)
Cost of production ↓
SRAS ↑
SRAS curve shift rightwards

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PL ↓ , Deflation
RGDP↓: RGDP , Recession, High unemployment
The retail sector of Singapore is negatively impact as unemployment increased in Singapore's.
Thus, the purchasing power of Singapore citizens shrinks as there income reduced. Aggregate
demand and consumption will also fall, and then the RGDP will decline. As shown in the below
diagram:
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

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AD↓: Aggregate demand falls
AD↓: Aggregate demand curve shift leftward.
C↓: Consumption falls
I↓: Investment falls
P↓: Price level falls, (Deflation)
RGDP↓: RGDP falls, (Recession), 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, the government is compelled to do expansionary fiscal policy. Global
demand affects Singapore the most as it is more exposed among all Asia countries. The
government provides tax rebates to SME and access to more than S$2 billions of loan, 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 is boosting the aggregate demand by spending on infrastructure which ultimately
creates jobs and wages reduce the unemployment.
At the same time, the government supports individuals and company by reducing corporate and
personal income. After reducing corporate tax, company has benefit of grabbing more marginal
of profit.

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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:
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).
Expansionary fiscal policy to solve recession

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Fiscal policy tools
G↑: Government increases
T↓: Taxes falls
-income tax ↓
-business tax ↓
AD= C+I+G+X-M
AD↑: Aggregate Demand increase
AD↑: Aggregate Demand shift rightward
P↑: Price Level increase, (Inflation)
RGDP↑: RGDP increase, (Expansion), Low unemployment
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

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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 a 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, the government
is compelled 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 supports
individuals and company by reducing corporate and personal income. After reducing corporate
tax, company has benefit of grabbing more marginal of profit. Thus, by giving less income in tax
payment, an individual can spend more and invest more, which leads to increase aggregate
demand as well as output and stimulate economic growth.