2021 JC2 H1 Prelim CSQ 1 Suggested Answers:

(a) With reference to Table 1, compare the government expenditure on early childhood
education as a percentage of GDP in China and Singapore for the period 2015-2019. [2]

The government expenditure on early childhood education as a percentage of GDP in both

countries were generally decreasing. [1] However, China consistently incurred a larger
expenditure on early childhood education as a percentage of GDP than Singapore for the
period. [1]

Alternative differences

 China experienced a constant decline over the years while there were 2 periods of increase
for Singapore in 2016 and 2019.
 Singapore experienced a larger decline in terms of magnitude than China.

(b) Using a supply and demand diagram, explain how the combination of building more
public kindergartens and the increasing value of early childhood education have affected
the market for China’s early childhood education. [6]

Demand factor

There will be an increase in demand for early childhood education due to Chinese parents
increasingly valuing it as seen from Extract 2. As such, there is a change in taste and
preferences towards enrolling for early childhood education. Consumers are now more willing
to purchase early childhood education services, leading to an increase in demand for it. This will
lead to a rightward shift of the demand curve from D0 to D1 as seen in figure 1.

Supply factor

From extract 2, we can see that the government is working to build more public kindergartens.
This is a form of government’s direct provision which will increase the supply of early
childhood education as it is akin to an increase in the number of producers. This will lead to a
rightward shift of the supply curve from S0 to S1 as seen in figure 1.

Given that DD and SS are both likely to increase, equilibrium quantity will certainly increase
while the change in equilibrium price is indeterminate as it depends on the extent of increase in
demand and supply.

Extract 2 mentions that there is chronic shortage of kindergartens. Thus, despite the increase in
supply due to government provision, it is likely that the increase in supply will be less than
increase in demand in the short run. Equilibrium price is hence likely to rise.
Figure 1: Market for early childhood education

(c) Explain whether public kindergarten services is considered a public good. [4]

To assess whether public kindergarten services can be classified as a public good, we need to
determine if it fits the criteria of non-excludability and non-rivalry.

Non excludability in consumption refers to a situation where it is impossible or prohibitively

expensive to exclude non-payers from enjoying a good once it is paid for. [1] In this case, it is
possible to exclude those who do not pay school fees from enjoying kindergarten services. [1]

Non rivalry in consumption refers to how the consumption of a good does not reduce the
quantity available to others. [1]

① could be rival when we consider how the enrolment of a child into a kindergarten will reduce
the no of vacancies available to others [1]

OR

② could be non-rival when we consider how one child’s attendance/enjoyment of a lesson

taught by a kindergarten teacher does not diminish the enjoyment by another child in the
vicinity. [1]

Note to marker:
- If students apply the characteristic correctly with an example without defining, can still award
maximum marks as there is an implicit understanding of what they entail
(d) Extract 2 states that “The income and status of kindergarten teachers should be
increased to help attract and retain qualified teachers for kindergartens.

Explain whether this statement is a normative one. [4]

A normative statement is a statement with a value judgement. The word “should” suggests that
the statement is an opinion and a prescription of what can be done to attract teachers. Hence it
can be considered a normative statement. [2]
However, whether an increase in income and status can help attract and retain qualified
teachers can be tested and validated through surveys and censuses etc, making it a positive
statement [1]
Thus, whether the statement is normative depends on whether it was in principle capable of
being refuted by referring to evidence. [1]

(e) Explain how the concept of price elasticity of demand can be used to estimate the
possible effects of raising wages on the revenue of early childhood operators in China
and comment on whether raising wages can be justified. [7]

Explain impact of raising wages on the equilibrium price of early childhood education services:

 The increase in wages across the entire market will lead to higher cost of production,
making it less profitable to produce at each price level, thus producers will be less able and
willing to produce early childhood education services, which will decrease supply, leading to
a rise in prices of early childhood education

Using PED values to estimate possible effects on TR:

PED<1
 Price elasticity of demand is defined as the degree of responsiveness of quantity demanded
to a change in its price, ceteris paribus.
 From Extract 2 and 4, working parents/grandparents suggest that there is little other
substitutes for early childhood education as a form of childcare. Due to this lack of close
substitutes, demand for early childhood education services is likely to be price inelastic.
Thus, when price increases, quantity demanded will fall less than proportionately. The gain
in TR due to the increase in price outweighs the fall in TR due the fall in quantity demanded,
leading to a net increase in total revenue.

 Alternatively, it may be in the form of increasing the quality of their existing educators as
they become more motivated to work with their higher wages.
With higher quality educators, the branding of their centre may be enhanced, which could
reduce the substitutability of early childhood education. Due to this, there is a lack of close
substitutes, demand is likely to be price inelastic. Thus, when operators increase price,
 quantity demanded will fall less than proportionately. This will cause total revenue to
increase.

PED>1
 However, if the IPED| of early childhood education services is >1, where there are many
different childcare centres and kindergartens for parents to choose from / government
involvement in standardising the curriculum, an increase in price of ECE services will bring
about a more than proportionate fall in quantity demanded, resulting in a fall in total revenue.

Comment on whether raising wages can be justified (either 1 of the points below will suffice)

 Given the shortage of preschool educators, wages should be increased to incentive more
people to join the industry. In order to do so, the increase in TR from raising wages needs to
be greater than the increase in cost of production due to higher wages, resulting in higher
profits for operators, thus raising wages can be justified.
 A possible opportunity cost would be the use of the increased wages on other aspects of
their operations such as the streamlining of work processes mentioned in extract 4. The
examples of IT solutions to aid day-to-day routines can possibly lower their cost further but
channelling it to increase wages for their educators could be a missed opportunity to cut
their cost instead. If the benefits of higher TR > explicit and implicit cost of raising wages,
raising wages can be justified.
 There may be unintended consequences where higher wages paid out may lead to parents
finding fees unaffordable. In such circumstances, the government may step in to impose a
fee cap. These operators will then face a double whammy as their cost goes up when they
raise wages and the fees cap now constraints their revenue. As such, this might lead to
lower profits, thus raising wages cannot be justified.

Level Knowledge, Application, Understanding & Analysis Marks

L2 Developed explanation of how firms can make use of the concept of 4-5
PED (PED>1 vs PED<1) to decide whether they should raise wages for
ECE

L1 Developed explanation of how firms can make us of the concept of PED 1-3
(either PED>1 or PED<1) to decide whether they should raise wages for
ECE..

Undeveloped explanation of how firms can make use of the concept of

PED (PED>1 vs PED<1) to decide whether they should raise wages for
ECE

Evaluation
E Builds on an appropriate analysis to arrive at a well-reasoned judgment 1-2
of whether raising wages can be justified.
(f) (i) With reference to Extract 1, explain what is meant by ‘positive externality’ in the
market for early childhood education. [2]

Positive externality refers to external benefits of production or consumption on persons other

than the producers and consumers. These third parties do not need to pay to enjoy this benefit.
From extract 1, we see that children that go through early childhood is more likely to be a law
abiding citizen and will also likely be employed which will benefit third parties such as their co-
workers as they are likely to be more productive working with these individuals.

(f) (ii) In extract 5, it mentioned that “free markets benefited society at large, with no
requirement for state intervention”.

Using evidence from the case study, discuss the validity of this statement in the market
for early childhood education. [10]

Thesis: Price mechanism can bring about allocative efficient outcome without state
intervention. [3m]

Assuming no presence of externalities, imperfect information and public good, the free market
via the use of price mechanism should be able to achieve allocative efficiency. Allocative
efficiency is defined as a situation where the combination of goods and services produced and
consumed maximises societal welfare.

Price mechanism involves the forces of demand and supply to determine what to produce, how
much to produce and for whom to produce.

Note: Any 2 out of the 3 functions of price mechanism will suffice

Firstly, prices perform a signalling function. For example, if market prices are rising because of
rising demand from consumers as in the case of China’s market for early childhood education, it
is a signal to suppliers to expand their production to meet the higher demand.

Secondly, prices perform an incentive function. When demand is strong in a particular industry,
higher market prices act as an incentive to raise output because the supplier stands to make a
higher profit. As a result, resources move out from less profitable industries into the more
profitable one, leading to an efficient allocation of resources.

Lastly, the price mechanism rations out the goods produced according to the willingness and
ability to pay. The willingness to pay depends on how much satisfaction they derive from the
consumption of these goods. The ability to pay for the goods is constrained by their income. As
a result, resources will move towards those who are willing and able to pay for it.
With reference to figure 2, assuming the absence of causes of allocative inefficiency, the
MPB will be equal to MSB and the MPC will be equal to MSC. The market output Qm which is
determined by MPB=MPC will hence coincide with the socially optimal output Qs, determined by
MSB=MSC. The free market hence achieves allocative efficiency as allocative efficiency is
achieved.

Figure 2: Market for early childhood education assuming no market failure

Anti-Thesis: Price mechanism may fail to achieve allocative efficient/equitable outcomes

hence state need to intervene. [4m]

However, there is positive externality present in the market for early childhood education.

Consumers only consider their private benefit such as the healthy development of the child.
However, as explained in f(i), the presence of positive externality is due to how the
production/consumption of early childhood education has external benefits.

Due to the presence of positive externalities, the marginal social benefit is more than the
marginal private benefit. [0.5] Assuming the absence of negative externalities [0.5], the market
for early childhood education can be illustrated through figure 3.
 Figure 3: Market for early childhood education with positive externality

The market output Qm is given by MPB=MPC [0.5] while the socially optimal output is given by
Qs given by MSB=MSC. [0.5] As Qm is less than Qs, there is under allocation of resources to
the market for early childhood education [0.5]. This results in a deadweight loss as seen by the
area ABC in figure 3. [0.5] More resources can be channelled to the market to improve societal
welfare.

Evaluation

The use of the price mechanism do benefit societies when there is no causes of market failure
present. However when causes of market failure/inequity exists, state intervention is required.
However, there are also limitations to state intervention and government may fail as well in their
attempt to intervene.

Level Knowledge, Application, Understanding & Analysis Marks

L3 Developed discussion of how the free market through the price 5-7
mechanism may or may not benefit society as seen in L2
L2 Developed discussion of how the free market through the price 3-4
mechanism will benefit society through bringing about allocative efficiency
via the functions of the price mechanism.

OR

Developed discussion of why the free market may fail either due to
positive externality/imperfect information OR how the free market suffers
from inequity; hence requiring state intervention

OR

An undeveloped explanation of a mix of the points above

L1 Smattering of valid points 1-2
Evaluation
E3 Builds on an appropriate analysis to arrive at a well-reasoned judgment 3
about whether state intervention will necessarily benefit society if
 implemented

E2 Underdeveloped judgment about whether free market benefits society at 2

large
E1 Mainly unsupported judgment 1

(g) Discuss the view that subsidies is the best way for governments to achieve a more
efficient allocation of resources in the market for early childhood education. [10]

As explained in f(ii), market output is lower than the socially optimal level of output due to
positive externalities. Thus, the government can use policies to increase market output.

Thesis: Subsidies will help to achieve a more efficient allocation of resources [3]

Subsidies can be given to early childhood education centre operators. From extract 3, ECDA
provides funding support to partner operators. With reference to figure 3, subsidies equivalent to
MEB helps to lower cost of production and increase supply from SS0 to SS1 (or reduce MPC0
from MPC0 to MPC1). New market output where MPB = MPC1 now coincides with Qs.
Anti-thesis: Subsidies may not help to achieve a more efficient allocation of resources

① Limitations of subsidies (either 1):

- There is imperfect info on part of government. As it is difficult to monetise the external
benefits of early childhood education to the society, government may wrongly estimate the
amount of subsidy to be given. Too little subsidies may not increase supply and market
output of ECE services significantly, such that Qm may remain well below Qs. [1]

- However, lower cost of production may not translate to higher output. If firms are content to
take the cost-savings as part of higher profit at current output, supply and market output
may not increasing significantly, such that Qm may remain well below Qs. [1]

② There are other policies that can bring about a more efficient allocation of resources.

- Grants
The government can provide grants for consumption of ECE services. This is usually done
via means testing. From extract 3, families receive grants if the gross monthly household
income is $7,500 and below. Ideally, the amount of grants should be equal to the amount of
MEB per unit (figure 3).

This would increase disposable income of families and increase their purchasing power, such
that they now have higher ability to pay for early childhood education. This increases demand
from DD0 to DD1, thus increasing market output Qm to the socially optimal level of consumption,
Qs.

<Limitation>: However, while grants increases ability to pay, families’ willingness to pay may not
change. Some families may be unwilling to expose their child to a foreign environment at an
early age for fear of them contracting illnesses. As such, demand and market output may not
increase significantly.
- Moral Suasion

The government can encourage families to enrol their children for early childhood education
through advertisements or publicizing it on a public platform. E.g. in extract 3, PM Lee
emphasised in a National Day Rally that ECE is important for a good start in life.

When more families are convinced of the importance of ECE, this increases demand from D0 to
D1. Market output Qm increases, bringing it closer to the socially optimal level of consumption,
Qs.

<Limitation>: However, it depends on the receptiveness of families. If they are not convinced,
demand and market output may not increase significantly, such that Qm may remain well below
Qs.

Evaluation:

Whether subsidies is the best policy depends on the root cause of under-consumption. The root
cause appears to be due to the positive externality generated from the consumption of early
childhood education services, which calls for policies to increase demand. However, given that
parents increasingly value education (ext 4), demand may had already increased without the
need for government intervention.

Level Knowledge, Application, Understanding & Analysis Marks

L3 Developed discussion of at least two policy options and their limitations. 5-7
The 2 policy options should include subsidies and another policy that will
increase demand or supply.

L2 Developed discussion of subsidies and its limitations 3-4

OR

Developed discussion of a policy option other than subsidies.

L1 Smattering of valid points 1-2

Evaluation
E3 Builds on an appropriate analysis to arrive at a well-reasoned judgment 3
about which policy option is the best, based on a criteria.

E2 Underdeveloped judgment about which policy option is the best 2

E1 Mainly unsupported judgment about policy options. 1
2021 JC2H1 Prelim CSQ 2 Suggested Answers:

a. Using Table 2, compare the standard of living between the UK and Singapore citizens.
[6]

Standard of living is a broad concept that refers to the level of well-being of a typical
individual within the country. It encompasses both material and non-material aspects of life.

Nominal wage growth is higher than inflation rate in both countries, thus there is real wage
growth in both UK and Singapore. The UK enjoys a larger increase in real wage growth than
Singapore, thus one can conclude that material standard of living in the UK increased by
a larger extent as compared to that of Singapore. This implies that the UK citizens enjoyed
a larger magnitude of increase in their purchasing power as compared to Singaporeans.

Given that Singapore has a lower unemployment rate than the UK, it could suggest higher
material SOL as a larger percentage of Singaporeans are able to buy goods & services with
income earned. Lower unemployment rate will also mean that the country may have less
social instability, suggesting higher non-material SOL in Singapore.

PM 10 is lower in the UK which means that the quality of air is better in the UK, indicating a
higher non-material standard of living in the UK.

b. With reference to Extract 6, explain two factors that might have limited the
effectiveness of fiscal policy as a stimulus to the UK economy.
[4]

In 2009, the UK government implemented an expansionary fiscal stimulus that is about

aggressive spending by the government. The aim is to create an increase in C, I and G
 which will increase the aggregate demand for UK, bringing about a multiple increase in
national income.

However, there could be factors affecting the effectiveness of the fiscal policy. First of all,
there could be negative market sentiments. With global financial crisis affecting many
countries around the world, causing a negative domino effect, consumers and investors
would not be confident to consume and invest despite the lower tax rates the government
might have lowered to spur consumption and investment. There could be much uncertainty
as the market is unsure of how the future will pan out and whether the fiscal policy will be
effective, thus affecting the effectiveness of the fiscal policy as the targeted consumption
and investment expenditures did not increase as much.

Secondly, there could be crowding out effect since UK government is already in a budget
deficit. When the government had to borrow from the private sector to finance her
expenditures, the demand for money will increase in the domestic money market which will
cause the interest rate to increase. Since the cost of borrowing would increase, the
consumption and investment expenditures might decrease as a result because consumers
and investors find it more expensive to borrow to finance the purchases and investments
respectively. The fall in C and I could possibly negate the intended increase in government
expenditure, causing the overall change in AD to be insignificant, rendering the fiscal policy
ineffective.

c. (i) Describe the changes in the UK’s government budget balance as a percentage of
GDP between 2010 and 2019. [2]

The budget balance as a percentage of GDP has been in a deficit but this deficit is
decreasing.

c. (ii) Discuss the likely impact of the austerity measures implemented by the UK
government on its economy. [10]

When the UK government imposed the austerity measures, the objectives were to cut down
on the government’s budget deficit. The implementation of the austerity measures of
increasing taxes, cutting down on government policies and wage freeze in the public sector
will help to increase tax revenue and reduce financial outlay, resulting in a healthier budget
position. This is the key objective of implementing the austerity measures. Given UK’s
current high public sector debt, such a policy is necessary because it signals to potential
investors that UK is taking concrete action to improve the state of her finances so that the
economy can grow in a sustained manner over time. If successful, this increased investor
confidence should raise C, I and consequently AD and NY. The increase in NY due to
positive expectations could further raise tax revenue collected by the government, further
reducing the budget deficit.

With a relatively healthy budget position, the government will then consider reducing the tax
rates and be in a better financial position to implement any expansionary fiscal policy if
necessary in the future.
Impact on general price level (GPL):

A restrictive fiscal policy leads to a fall in AD which can help prevent inflationary pressures, if
the economy does recover and moves closer to the full employment level of output.

Note that this scenario was unlikely given the current economic environment where
there was much idle resources in the economy.

Negative impact on UK economy due to the austerity measures

The austerity measures of increase in tax rates will cause personal disposable income and
after-tax profits to decrease respectively, while the cut in government spending will result in
a fall in government expenditure. The combined fall in consumption, investment and
government expenditures will result in a fall in AD and subsequently a fall in NY via the
reverse multiplier process.

Impact on other indicators of the economy due to the restrictive fiscal policy

Furthermore, the fall in NY is likely to affect employment adversely. Individuals who have
lost their jobs may consequently see a drop in their material standard of living following a
loss of income.

Over time, cuts in government spending on healthcare or financial assistance to low income
groups may possibly worsen income inequality in the economy

Depending on what taxes are raised and government spending is reduced, there may be
implication on UK’s long run aggregate supply (LRAS)

Specifically, if personal income taxes are increased excessively, individuals may be decide
to work less hours and this reduce the quantity of labour. If corporate taxes were increased,
it may discourage investment and quantity of capital will be reduced. If spending on public
infrastructure, education, R&D is reduced, this will adversely affect the quantity and quality
of resources in the economy. Taken together, this may hinder the growth of UK’s LRAS over
the long term, thus limiting potential growth

In addition, due to the contractionary effect of the austerity measures, it actually implies less
tax revenue can be collected while the government probably needs to pay out more
unemployment benefits.

If so, this may go against the initial intention of dealing and reducing the budget deficit.

Conclusion:
 Despite the limitations of the restrictive fiscal policy, the UK authorities have supplemented
its use with an expansionary monetary policy, evident from UK’s low interest rates. This
helps to partially cushion the fall in AD due to the cuts in G and tax increases.

In this case, UK faces a policy dilemma because on the one hand, she needs to cut
spending/ raise tax to avoid chalking up higher debt but on the other hand, the weak
economic conditions she is in does not give her much fiscal resources to undertake an
expansionary fiscal policy.

Implementing austerity measures can have both positive and negative impact on the
economy, although in the short term, negative effects may be more evident.

Whether the positive effects can materialize in the long term would depend on how
economic conditions (both in UK and the global economy) change, as well as how effective
other policies work in lifting the overall outlook.

L3 A developed discussion about the benefits and costs to the UK 6-7

economy with the implementation of the austerity measures. Clear
economic analysis is provided to account for the impacts on UK
economy based on the 3 macro aims.

L2 A developed one-sided explanation on how the austerity measures 3-5

might affect UK’s economy.
OR
An undeveloped discussion on how the austerity measures could
affect UK’s economy.

L1 Smattering of valid points 1-2

EVALUATION
A synthesis using economic arguments to arrive at relevant
judgements.
E2 2-3
Evaluative comments supported by accurate, logical and clear
analysis
Relevant judgement(s)/decision(s) (did answer the question) but may
not follow from relevant economic arguments.
E1 1
Comment (s) may lack depth, clarity, and logic.

d. Singapore's limited exposure in terms of trade and investment in Britain could see
the Republic emerge relatively unscathed from Brexit.

Using AD/AS analysis, assess the validity of this statement. [8]

 It was mentioned in Extract 3 that Singapore’s trade with Britain accounted for only one per
cent of its total exports and 2.1 per cent of its total imports last year. This would mean that
when there could possibly be negative economic growth or slowdown in UK’s economy,
there will be a fall in UK’s income, resulting in them buying less imports. However, because
UK accounts for only 1 % of Singapore’s exports, the fall in export revenue from UK will
have a very insignificant impact on Singapore’s overall exports. Moreover, Singapore had
already undertaken measures to ensure that Singapore would not be too badly affected by
the possible outcomes of Brexit as the concerns of a significant fall in export sales and
foreign direct investment rose. As mentioned, Singapore was already working on a trade
deal to bring the provisions of the EU-Singapore Free Trade Agreement to the UK,
independent of Brexit outcomes, and such an extension should help trade and investment
flows to continue unabated.

In addition, economists and politicians are confident that the uncertainties within in UK and
around the EU region might actually turn more foreign direct investments to Singapore since
she can assure investors of political stability and relatively conducive investment climate.
The case of Dyson moving its headquarters to Singapore was one of the many examples of
investments shifting to Singapore in the wake of heightened economic uncertainties within
EU.

With I and X unlikely to fall significantly, Singapore’s AD will not be decreasing, leaving the
Republic to emerge relatively unscathed from Brexit.

On the other hand, the impacts on Singapore could be more uncertain in the long term. This
is most probably because of the country’s reliance of trade and FDI on the global economy.
Given Singapore’s small domestic market and small population, it is inevitable and more
benefitting for Singapore to rely on the global market for a boost in terms of export and FDI
growth to their national income. However, in the long run, when the effects of Brexit have
affected UK’s trading partners, which could in turn be Singapore’s trading partners, then
Singapore will be affected adversely by experiencing a fall in net exports and investments
from these countries.

It was mentioned in the extract 3 that the small medium enterprises in Singapore might be
affected adversely by the possible loss of business due to Brexit. With companies in UK
having to restrict their business dealings with the rest of the world, the possible downsizing
might cause them to reduce production so the business dealings with the SMEs in
Singapore

L2 A developed discussion about the possible impacts on Singapore’s 4-6

macro indicators due to the effects of Brexit in the UK, encompassing
economic reasons for why components of AD of Singapore might
have increased or decreased. Answer should include a clear analysis
of the evidence in the extract.

L2 A developed one-sided explanation on why Singapore’s macro aims 1-3

like EG etc might have been affected in a certain way or unchanged.

OR

An undeveloped discussion on how the components of Singapore’s

AD might be affected by the effects of Brexit, with little reference to
 the case material.
EVALUATION
A synthesis using economic arguments to arrive at relevant
judgements.
E2 2
Evaluative comments supported by accurate, logical and clear
analysis
Relevant judgement(s)/decision(s) (did answer the question) but may
not follow from relevant economic arguments.
E1 1
Comment (s) may lack depth, clarity, and logic.

e. (i) State what is meant by sustainable growth and explain why it is important for
Singapore to achieve it. [5]

Sustainable economic growth indicates a rate of growth that can be sustained without
creating other significant economic problems (such as depleted resources and
environmental problems), particularly for future generations. In the pursuit of sustainable
growth, sustained growth needs to be first attained.

It is important to achieve sustainable growth as green financing and sustainable

infrastructure can help Singapore to maximise the usage of our limited resources, where
more output can be produced with the same amount of input. This allows firms to operate at
a lower unit cost of production. As such, “a greener Singapore” will help us gain a
“competitive advantage” where price of exports become relatively cheaper, and assuming
PEDx>1, Singapore will gain higher export revenue, thus higher AD, leading to higher
economic growth.

It is important to achieve sustainable growth as it minimises the level of pollution and

resource depletion, reducing the extent of negative externalities and minimises the fall in
citizens’ non-material standard of living. This is especially important for Singapore as we
are “a small, densely populated island nation with no natural resources,” where higher
population density worsens local air quality and may worsen non-material SOL if the
government doesn’t aim for sustainable growth.

Note: or any other acceptable answers (consequences of EG)

e. (ii) Discuss the extent to which sustainable growth can be achieved through
investments in infrastructure development. [10]

Thesis: Explain how tax cuts in certain industries can bring about sustainable growth.
The Singapore government have planned to “push for sustainable infrastructure development
across the region” (Extract 4). When the government expenditure on infrastructure increases,
the aggregate demand increases from shifts rightwards from AD 0 to AD1 in Figure 1, which will
result in increase in real GDP by a multiple via the multiplier process, from Y0 to Y1.

Moreover, the boost in infrastructure spending will also increase the productive capacity at the
same time as it will lead to an increase in quantity and quality of capital and this will enable the
country to achieve sustained economic growth. This is shown by a rightward shift of the AS
curve from AS0 to AS1 towards a higher level of potential output YF 1, leading to national income
increasing further to Y2, and only a slight increase in general price level from P 0 to P1, achieving
sustained economic growth.

Figure 1: Singapore’s economy

With more careful planning and insightful projection, the government can increase spending in
infrastructural projects using sustainable materials and adopting processes which do not harm
the environment in the long term by minimizing waste, bringing about sustainable growth.
Anti-Thesis 1: Explain how the spending on infrastructure will not bring about
sustainable growth.

[Any 1 limitation]:

Firstly, unless the government can identify accurately and plan properly on the areas to spend
on which can help contribute towards the achievement of sustainable growth in the future, the
increase in government expenditure might only bring about actual growth and sustained growth.
Given the pressure of decreasing actual growth in recent months, the government also might
have to reconsider the plans to increase sustainable growth and aim for more immediate
economic growth.

OR

In addition, Singapore relies heavily on imports as we do not have any natural resources
(Extract 4) and has a high rate of savings due to the culture of thrift. Thus, expansionary fiscal
policy is unlikely to be effective in bringing about sustainable growth. Due to the high rate of
withdrawals, the size of Singapore’s multiplier is small. The government will have to incur a
level of expenditure almost equivalent to the size of the output gap in order to bridge it. This is
a huge strain on the government’s budget.

OR

It was mentioned in extract 4 that the “together with existing infrastructure needs, our total bill
for infrastructure will increase significantly”. This puts a strain on the government’s budget. If
Singapore suffers from a fiscal deficit, the government might have to borrow to finance the
expenditure on education, the demand for loanable funds will increase and may crowd out
private investment and consumption, thereby affecting actual growth. However, this is quite
unlikely in Singapore’s context.
Anti-Thesis 2: There are better and more effective ways to bring about sustainable
growth directly

According to Extract 4, President Halimah said that “jobs will continue to be the Government’s
top priority for the next few years….. create new job and training opportunities for
Singaporeans.” Through the SkillsFuture Programmes, the workers between 40 to 50 years old
are encouraged to go for training and upgrading, so that the productivity at the workplace can
be increased. When the quality of labour improves, there will be greater efficiency at work, thus
LRAS will shift to the right and bring about sustained growth at first, and with greater productivity
at work, there is less need to waste resources and might be even able to cut down on the usage
of certain raw materials as production processes continue to innovate and improve, then
sustainable growth will be achieved.

However, the results from training can be uncertain as it depends on the attitude and aptitude of
the workers towards and the efforts of education and retraining might require a long time to see
effects.

Conclusion:
Investment in infrastructure is a fiscal policy with supply side intent, and it will be necessary for
Singapore to achieve sustainable growth but it will require careful planning and long term
devotion in the projects. The spending by the government should also be carefully thought
through and in specific industries and sectors which can bring about long term economic growth
without any harmful effects on the environment.

L3 A developed discussion about the policies which can bring about 6-9
sustainable growth in Singapore.
Developed discussion should include:
 How investment in infrastructure & another policy work to
increase actual and potential growth
 How investment in infrastructure & another policy may reduce
emissions of pollutants thereby leading to sustainable growth
 Limitation of the policies

L2 A developed one-sided explanation on how the policies work to bring 3-5

about sustainable growth in Singapore.
OR
An undeveloped discussion on how the policies work to bring about
sustainable growth in Singapore
L1 Smattering of valid points 1-2
EVALUATION
A synthesis using economic arguments to arrive at relevant
judgements.
E2 2-3
Evaluative comments supported by accurate, logical and clear
analysis
Relevant judgement(s)/decision(s) (did answer the question) but may
not follow from relevant economic arguments.
E1 1
Comment (s) may lack depth, clarity, and logic.