Economic Policy and the Global Environment

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Table of Contents

1.Economic Overview …..................................................……...……….…. 3 2.Essay Objective ……………….................................................................. 3 3.Summary of the Chosen Article …….....................................………......... 3 4.Background on 2008 Recession …......................................……………… 4 5.V Shaped Recession ……………….......................................……………. 5 6.Low Interest Rates Causing a Medium Term Inflation Risk ……….…….. 6 7.Cost-Push Inflation ………………....................................................…….. 7 8.Rapid growth in Asian markets also threatens rising inflation…….……... 8 9.Unemployment ……………................................……………………….... 8 10. Raising interest rates ………………………………………...................... 8 11.Automatic Fiscal Policy ............................................................................. 10 12.Appreciation of the Singapore Dollar ........................................................ 10 13.Stronger Domestic Growth ......................................................................... 11 14.Conclusion .................................................................................................. 11 15.References .................................................................................................. 12 16.Appendix .................................................................................................... 13

Economic Overview
Singapore economy is a highly developed one with a successful free market economy in which the government plays a major role. Singapore has long pursued economic policies that promote open trade and investment. These policies have allowed Singapore to overcome it's land, labour and resource constraints, and develop into one of the world's most successful open trading and investment regimes.

According to the World Bank “Doing Business 2010 Report,” Singapore economy is considered to be the easiest to do business in. In fact, Singapore has been awarded the most competitive country in Asia. It enjoys a per capita GDP higher than that of most developed countries. The economy depends heavily on exports, particularly in consumer electronics, information technology products, pharmaceuticals, and on a growing service sector.(http://www.tradingeconomics.com/Economics/GDP-Growth)

Essay Objective
To discuss about the call by Singapore Finance minister Tharman Shanmugaratnam for gradual monetary tightening in Asian Central banks. My intent in this paper is to give an overview on why there is a global call of tightening monetary policy.

To understand this “call of tightening monetary policy” in the current global scenario, I am to present an overview of what has happened for the past few years that has led to this action. In the process of building the reason to tighten monetary policy, I would use economic driving indicators and economic models to address this issue.

Summary of the Chosen Article
Finance Minister Tharman Shanmugaratnam delivered this message at a United States conference on Monday, telling bankers, policymakers and economists from around the world that the region should start raising interest rates gradually. (Time for Gradual Monetary Tightening - Strait Times dated 9th July 2010)

The article states that Mr Tharman iterated that Asian banks should start tightening their monetary policy. In most countries tightening monetary policy occurs by lifting interest rates. The effects of lifting interest rates make borrowing more expensive which intern will hold back spending and reduce inflation.

In Singapore, lifting of interest rates will cause the appreciation of the Singapore dollar. This effect affects the appreciation, making imported goods cheaper but hurts exporters by making exports more expensive to other countries.

Economists have flagged rising prices of goods and assets as one of the major risks facing Asian...
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