Assess the measures small and open economies such as Singapore should adopt to reduce inflation

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Assess the measures small and open economies such as Singapore should adopt to reduce inflation

   The achievement of price stability is one of the key macroeconomic aims of the Singapore government. Price stability is achieved when low and stable inflation rates are achieved in the economy. Governments that have maintained inflation rate at below 5% can be said to have achieved price stability. Price stability is important in Singapore’s economy as it is the basis for sustainable growth in maintaining export competitiveness and providing a positive business environment. There are several measures Singapore can take to reduce inflation: fiscal policy, exchange rate policy and supply policies, both short term and long term.

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   The exchange rate policy can be used to reduce inflation in Singapore. Exchange rate policy is a policy that is used to control the exchange rate to influence aggregate demand or aggregate supply. When its external economic environment is strong, Singapore will experience high inflation in the absence of central bank intervention. When Singapore’s trading partners expand rapidly, their national income and general price level will rise rapidly. When this happens, the prices of imported goods and services in Singapore, which include both consumer and intermediate goods in Singapore will also lead to high cost-push inflation. Further, the external ...

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