Uncertainty of U.S. economic recovery and the relative recession in the global electronics market has also led to further downturn in Singapore's export demand. As reduction of global demand, as the pillar industry of Singapore, exports of electronic products sharply shrinking is the main reason of the country's economic downturn. Singapore is one of Asia's fastest growing economies. This year, the U.S. economy maybe decline in growth rate and the global electronics industry may decline are the main danger facing by Singapore's economy.
The Monetary Authority of Singapore states “domestic economic activity fell by 6.5% in the second quarter of 2011. The contraction was led by a slowdown in trade-related activities, due to supply-chain disruptions from the Japan earthquake and weaker demand from the advanced economies”（MAS, 2011）. Economic growth was weak in the 2011, reflecting the impact of transitory shocks such as higher oil prices and the Japanese earthquake.
“A strong dollar will stimulate GDP by discouraging exports and encouraging imports,” says Bob McTeer, former president of the Federal Reserve Bank of Dallas.
Monetary factors also affect GDP. The U.S is one of Singapore's major trading partners, the U.S. dollar exchange rate continued to decline, the relative value of Singapore dollar increase, but Singapore is a country need to reserve more foreign currency, which means it needs more exports, exporting more production needs to undervalue its own currency. Therefore, the decline in the dollar also affected Singapore's exports, led to GDP growth declined.
Question 2
In my opinion, I agree with the statement without a doubt. The main aim of the government is to reduce high inflation to keep balance.
Inflation, a monetary phenomenon, is an increase in money and credit. Its major consequence is raising prices. Inflation occurs when the economy's aggregate volume of money expenditures grows at a faster rate than its total real output grows. Inflation is thus an increase in the supply of money without a corresponding increase in the supply of goods and services. (Edward, 2000)
The official measure of the inflation is the increase of the general level of prices measured over a period of time, and RPI or CED is used as a measurement. To explain how it does this I must first explain the main two different causes of inflation.
First type of inflation is called cost-push inflation. It basically means that increasing costs of factors of production (wages, rent interest, cost of raw materials, increased normal profit requirement) push up the general level of prices. This applies to the aggregate supply side of the economy and arises partly because general wage costs arise, for example the powerful trade unions might have pushed up wages without increasing the productivity.
Import prices play a role as well, because nowadays no country is independent of the others. When a country has lower inflation than others it tends to "import" inflation with its foreign trade because foreign goods get more expensive. Also, for example, the massive rise in oil prices affected western oilimporting economies and caused inflation. The changing exchange rates also cause inflation. As the production costs of the firm rise it has to increase its price to cover the costs. Then in turn, as the goods are expensive, labour demands wage increases that will increase the production costs even further.
Another type of inflation is demand-pull inflation. This occurs when aggregate demand exceeds the value of output at full employment.
The role of government is to ease pressures from inflation; it takes appropriate monetary policy or fiscal policy to reduce high inflation based on different types of inflation. The government has several ways to control inflation. It can do this by using fiscal policy that manages the aggregate demand by using government spending and monetary policy to reduce investment, consumption and the circulation of the currency.
Fiscal policy: government should raise tax rate and reduce expenditure, for example, raising consumption tax, it makes goods more expensive, so you need to pay more consumption tax when you buy something, it will make you reduce the number of purchasing things. Thus, the total market demand will reduce at a certain level, making the overall price fall, playing an alleviative role to high inflation.
Main weapon to fight against inflation after 1970 has been monetary policy, widely used by Conservatives. The main policies have included controlling interest rates and medium-term financial strategy. Also the real inflation is much caused by people’s expatiation on future inflation, reducing the expectations of inflation in the future has been one of the governments' aims.
The consequences of inflation are quite serious. It has bad effect on growth, because it increases uncertainty and discourages savings. It is also damaging for the balance of payment, because it makes imports cheaper. It distributes incomes in favour of profit earning, away from fixed earning pensioners, whose real income will fall. Therefore, government must play active role in managing high inflation rate by an economy all the time.
References:
1. The Monetary Authority of Singapore, Recent Economic Developments in Singapore, 01 Sep 2011, pp 01 [01 Dec. 2011]
2. Bob McTeer, by , Posted in: , 03 August 2011 [01 Dec. 2011]
http://ourbusinessnews.com/impact-of-a-weak-dollar
3. Edward W. Younkins, HOW GOVERNMENT MANIPULATES MONEY AND PRODUCES INFLATION, 28 Oct. 2000 [02 Dec. 2011]
http://www.quebecoislibre.org/001028-11.htm
4. Walter E. Williams, Syndicated Columnist, The government’s role in inflation, 06 Sep. 2009 [02 Dec. 2011]
5. Hall, E. T. (1976). Beyond culture. New York: Dubleday Dell Publishing. [17 October. 2011]
