PACC6007 Economics - Macroeconomic Assignment, The University of Newcastle, Australia
The assignment focuses on aspects of the macroeconomic concepts, principles, relations and issues. The assignment is designed in a way that would be useful to assess the ability of a student to find, process and use publicly-available information and statistical data to calculate some macroeconomic variables of a designated country and explain them in a meaningful way.
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Answer - Macroeconomic variables of Singapore between 2004-2018
Singapore is believed to be one of the countries in the globe where ease of doing of business is high. It has one of the most developed free -economy with one of the highest per capita income. Its economy relies heavily on state-owned corporations and multinational organizations. A greater percentage of its labor force are foreigners. Singapore's major exports include chemicals and electronics. The progressive industrialization policies which promote public investment and encourage foreign direct investments are credited for the growth of its economy.
1. Calculate the percentage growth rate of real GDP for the sample period and plot it.
Answer - Percentage growth rate of real GPD
Dr. Kwong defines economic growth to be the rise in gross domestic product. According to OECD, (2013) Singapore's economy in the past had relied more on multinational organisations and government organizations with even economic policies tailor-made for such organizations. However, in recent times small and medium enterprises otherwis known as SMEs have greatly contributed to economic growth of the nation.
Calculating GDP Growth rate
A graphical representation of the Real GDP growth rate against time.
Real Growth Rate 2004-2018
Some of the factors that could have contributed to economic growth in Singapore include;
Interest rates: Interest rates are drivers of any given economy. Low interest rates make credit facilities more affordable encouraging investors to borrow and consumers to spend because they have more disposable income.
Technology: New technology is critical in improving productivity and increasing economic growth. According to IMF, (2017) Singapore has experienced transformative development in the technological front which has offered it comparative advantage.
Human Capital is another factor that has influenced the economic growth of Singapore. Human Capital refers to productivity workers.A health and motivated worker is an asset to any economy.
The economic growth in Singapore has exhibited high volatility as shown from the above illustration.
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2. Calculate the percentage rate of inflation based on the CPIYC or the GDP deflatorYC.
Calculating the percentage of inflation based on the GPD deflator=
GDP Inflator 2005- GDP deflator 2004
GDP Inflator 2004
Graph Inflation Growth Rate between 2004-2016
Inflation rate volatility in Singapore between 2004 and 2018 was high. High inflation volatility makes predictability of future price levels uncertain. Causes of inflation volatility may be grouped into two categories depending on the factors causing the volatility; the push factors such as the cost of commodities and pull factors such the output gap. Global change in oil prices; most firms use imported petroleum products in their production process. Increased oil prices and constant profits lead to firms raising prices to retain their profits. A fall in expected inflation and reduction in the bargaining gap are the only ways through which the high rates of inflation can be reduced.
A graph of Inflation against unemployment
Economist examined the changes in wages and unemployment in Britain between 1861 and 1957; In 1958 he established that there was an inverse relationship between unemployment and wages. In 16960 however, two economist Robert Solow and Paul Samuelson added to this idea to include unemployment and inflation. Governments for sometime tried to use the above theory in coming up with physical and monetary policies but data the 1970s indicate that the inverse relationship no longer hold (Lumen, 2018). The relationship depicted by the data above indicate that for most of the periods the rate of unemployment remained constant as the inflation levels fluctuated.
Real Inflation between 2004-2018
The real inflation rose between 2004 and 2007 which was the highest period just before the credit crisis. Thereafter it has been on constant fall up to 2014 which was the lowest from the data available. The subsequent period it has been fluctuating with only 2015 and 2016 has constant rate.
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3. Calculate the narrow or broad money growth rateYC in percentage terms.
Broad money Growth rate
Broad money growth against inflation
According to Milton Friedman a nobel prize winner when a country is experiencing very high inflation for some time, that country is expected to experience a sustained increase in money supply. Having more money in the economy than the available goods leads to inflation. Instances where money supply is equivalent to increase in demand for money, inflation is equal to zero. However, this perfect condition does not hold for long since the economy has to grow. Data obtained relating to Singapore does not support the theoretical assumptions. In the year 2007 when the economy of Singapore experienced negative inflation growth rate is the only period that the money supply equaled to supply.
4. Calculate the real loan rate of interest as the nominal interest minus the rate of inflation.
Real Loan Rate between 2004-2018
The year 2006 had the lowest loan rate while 2007 had the highest loan rate. The other periods had fluctuating results.
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5. Calculate the import payments as a percent of GDP and plot it.
Import Payment as a percentage of GDP
Singapore Monetary Policy
Since early 1980s Singapore's monetary policy has been based on exchange rate management. The main goal is to promote price stability for sound economic growth. Monetary Authority of Singapore is the manager of the Singapore dollar exchange rate against Singapore's trading partners and competitors' currencies. To ensure sustained economic growth, the monetary policy of Singapore is reviewed in every six months to ensure consistency with market conditions and economic fundamentals resulting in low inflation rates. The Authority manages a float regime for the dollar with exchange rate allowed to fluctuate within an allowed band rather than a fixed value (Monetary Authority of Singapore, 2019). Singapore is an open economy with over 99 percent of its imports entering the country duty free. However, motor vehicle and petroleum products, and tobacco products are highly taxed for social and environmental reasons.
Singapore's combined imports and exports is equivalent to over 300% of its GDP, this success is due to the vibrant nature of its economic policy. The role of regulating the fiscal policy of any nation is the central bank which in this case is the Monetary Authority of Singapore together with the legislative arm of the government. Singapore will continue to be the leading economy in the Asian region because of its progressive policies.
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