Essay Question 5b: To what extent have the main economic problems faced by Singapore in recent years been caused by strong economic growth. (15) Strong economic growth refers to high and sustained economic growth, which can be in terms of actual (an increase in Aggregate Demand – AD) and potential (an increase in Aggregate Supply – AS) growth. In recent years, Singapore has experienced a number of main economic problems such as negative externalities and failure to achieve equity (microeconomic), high inflation and a worsening balance of payments (BOP) (macroeconomic problems). There is a causal relationship between strong economic growth and these problems but strong economic growth is not totally responsible for the emergence of these problems in Singapore. Firstly, strong economic growth can lead to negative externalities in Singapore. Negative externalities are costs arising from an economic transaction that fall on a third party and not taken into account by those who undertake the transactions. This is seen from the left diagramthat producer maximise profit where MPC (marginal private cost) equals MPB (marginal private benefit). However, there is an overproduction as the social optimum output where MSC (marginal social cost) equals MSB (marginal social benefit) is less than the profit maximising output. Hence there is a deadweight loss to society. Left: ext negativities Right: actual growth
In Singapore, strong economic growth is characterised by an increase in the level of production as more goods and services are being produced in the economy. For example, electricity in Singapore is totally produced from fossil fuel; it is understandable that level of carbon emission is higher as the economy grows, leading to negative externality like air pollution. Also, a strong actual economic growth leads to an increase in real national income (right diagram). A fraction of population receives higher income, hence, higher disposable income and higher ownership of...
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