(2019) A Level H2 Econs Essay Q6 Suggested Answer by Mr Eugene Toh (A Level Economics Tutor)
(2019) A Level H2 Econs Paper 2 Essay Q6
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6. Globalisation has been a major influence on Singapore’s economic performance. The uncertainty and instability happening around the world in recent years could threaten the economic benefits that globalisation brings.
(a) Explain two different factors that have enabled globalisation to occur. [10]
Question Dissection
Any TWO different factors, described, with examples
Explain concept of globalization
Link factors explained to concept of globalization
Select any two of the following factors
Containerisation
Technological developments
Increased willingness to work abroad
Reduction of trade barriers
Economies of scale / specialization
Explain and introduce globalization
Increased interconnectedness between countries
Freer flow of labour between countries
Freer flow of trade between countries
Freer flow of capital between countries
Technological changes
Major technological developments include the Internet & the proliferation of high-speed broadband services.
Such developments have enabled the ability for businesses to be conducted instantly and allow for telecommuting, and firms can hold meetings across borders without the need for physical travel.
This has increased the amount of investments firms are willing to make in different parts of the world due to the increased ease of doing business.
Increased willingness to work abroad
There is increased willingness of people to move between countries to find work. This would likely due to the reduction in cost of air travel.
There is also a lower psychological barrier as workers can keep in touch with their families through video & other mobile communication tools.
This has increased the amount of migrant workers and expatriates who are willing to find work beyond their own borders.
(b) Assess whether current global economic developments will have a positive or negative effect on Singapore’s future economic performance. [15]
Question Dissection
Current global economic developments – Select at least TWO events, they need to be GLOBAL and CURRENT
Answer must be contextualized to Singapore’s context
Answer need to be discussing about the FUTURE
Answer needs to be focused on economic performance, e.g. GDP growth, inflation rate, BOP position, unemployment rate
Selection of 2 current global economic developments
U.S. China Trade War
COVID-19 Crisis / Worldwide Recession
US-China Trade War
In 2018 and 2019, US and China engaged in a series of protectionist measures imposed against each other, largely involving hefty tariffs across a wide range of goods & services
The immediate impact the protectionist measures will have is to reduce (X-M) for both US and China à causing a fall in AD for both US and China à real national income will fall à reducing purchasing power
The reduced purchasing power will thus reduce the ability for US and China to buy imported goods, which include goods from Singapore.
This will affect Singapore’s future economic performance as (X-M) will likely fall in the near future à fall in AD à fall in real NY à lower economic growth
This was actually evident as exports growth was poor in 2019
There may be further repercussions as trading partners for US & China will also be significantly affected à further resulting in fall in demand for SG’s exports
COVID-19 Crisis
As of 29 March 2020, COVID-19 has caused 600,000 infected world-wide, with an unprecedented lock-down in many countries.
Many countries have also either shut down their borders to the rest of the world and/or imposed heavy travel restrictions
There will be a fall in Consumption as consumers cut back on discretionary spending, a fall in Investments due to poor investment climate (with a global crash in stock prices), a fall in (X-M) as supply chains are disrupted and tourism comes to a complete halt
There will be a fall in AD à fall in real NY à lower economic growth
Many firms have or will resort to retrenching workers or cutting wages
Unemployment will increase
Impacts on Singapore’s Future Economic Performance
What would happen:
If the COVID-19 crisis prolongs with no end in sight, there is little chance of economic recovery – firms continue to retrench leading to an increase in cyclical unemployment
If more businesses or firms shut down as a result of incurring losses à there will be a fall in the long-term productive capacity of the economy à AS shifts left along with AD
If AS shifts left à later on when there is a recovery of AD, there will be a supply-side bottleneck, preventing a significant increase in economic growth.
Government intervention successful scenario
If the government stimulus successfully prevent firms from shutting down, there will not be a sustained increase in cyclical unemployment
As firms stay afloat and continuing hire workers in excess of their current production levels, it enables the AS to remain as it is à allowing a recovery later to result in high economic growth
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