Evaluate the use of the exchange rate, rather than interest rates, as the main tool of monetary policy.
2.6.2 · 4.1.8
It works for Singapore- Imports are a huge share of spending, so a stronger S$ cuts prices directly.
- Inflation fell to 0.9% in 2025.
- Steeper slope in 2026 used to fight imported energy inflation.
Limits- Gives up control of interest rates, which follow US rates.
- A stronger S$ hurts exporters' price competitiveness.
- Would not suit a large, closed economy like the US.
ChainMAS steepens the slope → S$ appreciates faster → imports cheaper in S$ → lower import costs for firms and households → inflation ↓; exports dearer abroad → AD ↓ slightly.
JudgmentThe best tool depends on openness. Where imports are a large share of the CPI and capital moves freely, the exchange rate is the most powerful lever. This is a classic "impossible trinity" choice.
Evaluate attracting foreign direct investment as a strategy for growth and development.
4.3.3 · 4.1.1
Singapore supports it- From about $500 per head (1965) to ~$99,000.
- Among the world's five largest FDI recipients (2025).
- MNCs brought technology, jobs and export markets.
Costs and risks- GNI per head ~17% below GDP per head as profits go abroad.
- Foreign firms can leave if costs or taxes change.
- Local firms lag in productivity.
ChainLow tax and stable rules → FDI inflows → capital stock and technology ↑ → productivity and exports ↑ → LRAS ↑, jobs and wages ↑.
JudgmentFDI worked because Singapore also built human capital, infrastructure and institutions. Without these, FDI tends to stay in low-value enclaves. Compare Ireland, and contrast South Korea's home-grown chaebol.
Assess the benefits and costs of globalisation for a small open economy.
4.1.1
Benefits- Access to world markets gives scale a city of 6 m could never have.
- Specialisation in finance, logistics, chips.
- Cheaper imports of food and consumer goods.
Costs- Imported shocks: 2020 recession, 2026 energy shock.
- Tariffs: 10% US baseline from 2025.
- Inequality between global high earners and low-wage workers.
ChainOpen trade and capital flows → specialisation by comparative advantage → economies of scale and FDI → higher productivity and income → but greater exposure to world shocks.
JudgmentFor a tiny economy, the gains from openness far outweigh the costs. The answer is to manage the risk (reserves, a flexible labour market, retraining) rather than to close the economy.
Evaluate compulsory saving schemes as a way to provide for an ageing population.
4.5 · 2.2
Strengths- 37% of pay (to age 55) saved through CPF.
- Funds housing, healthcare and retirement.
- Fully funded: no burden on future taxpayers.
Weaknesses- Low earners build small balances.
- Much of the saving is locked in housing.
- Keeps consumption low (~31% of GDP).
ChainCompulsory saving → higher national saving → funds for investment and housing → each generation pays for its own retirement → less pressure on the budget as the population ages.
JudgmentA funded scheme avoids the tax-burden problem of pay-as-you-go pensions (compare Japan, South Korea), but it does not pool risk. Top-ups for low earners are needed to stop old-age poverty.
Discuss the economic effects of immigration on the host country.
2.1.3 · 2.3
Benefits- 1.66 m foreign workers fill skilled and low-wage roles.
- Labour supply ↑ despite fertility of 0.87.
- Unemployment still only 2.0%.
Costs- May hold down wages for low-paid locals.
- Pressure on housing, transport and space.
- Firms may delay automation.
ChainMore foreign workers → labour supply ↑ → fewer shortages, lower cost pressure → LRAS ↑ → higher output; but wages at the bottom may grow more slowly.
JudgmentEffects depend on whether migrants complement or substitute for local workers. Singapore manages this with levies, quotas and pay floors, accepting a trade-off between growth and local concerns.
Assess whether a large current account surplus is a sign of economic strength.
2.1.4
Strength- Surplus ~17% of GDP: highly competitive exports.
- Builds foreign assets (GIC, Temasek).
- Protects against crises, as in 1997.
Not only strength- Reflects very low consumption (~31% of GDP).
- Forced saving through CPF.
- Residents may enjoy less of the output they produce.
ChainHigh national saving and low consumption → domestic spending below output → exports exceed imports → current account surplus → foreign assets accumulate.
JudgmentA surplus can reflect competitiveness or weak domestic demand. Singapore has both. Compare China, where the surplus is mainly a sign of weak consumption.
Assess the effectiveness of fiscal policy in a very open economy.
2.4 · 2.6.2
Effective- Large reserves allowed big support packages in 2020.
- Wage subsidies saved jobs.
- Targeted help works through transfers rather than the multiplier.
Limited- High marginal propensity to import: small multiplier.
- Shocks come from abroad; domestic spending cannot replace world demand.
- Rules require balance over a term.
ChainGovernment spending ↑ → incomes ↑ → much of the extra spending goes on imports → leakages large → small multiplier → limited rise in real GDP.
JudgmentFiscal policy is weaker at boosting AD in Singapore, but strong at protecting jobs and incomes in a crisis. Supply-side spending on skills and infrastructure is the better long-run use.
Evaluate the view that low taxes are the main reason some countries attract investment.
4.5.2 · 4.1.9
Taxes matter- 17% headline corporate tax, lower effective rates for some firms.
- Incentives have drawn regional headquarters.
- Countries now compete through grants and credits.
Other factors matter more- 15% global minimum tax since 2025, yet FDI is still strong.
- Rule of law, skills, infrastructure, location.
- Political stability and English as the business language.
ChainLower corporate tax → higher post-tax return → more FDI → capital stock and jobs ↑ → LRAS ↑, but tax revenue per firm ↓.
JudgmentLow tax helps at the margin, but firms stay in Singapore for institutions and skills. Since the minimum tax, these non-tax factors decide the competition.
Evaluate government intervention in the housing market.
1.4 · 4.5
Success- Close to 80% of residents live in HDB flats.
- Home ownership ~90% of resident households.
- Grants and CPF make flats affordable.
Problems- Resale prices rose sharply after 2020.
- 99-year leases lose value as they age.
- Heavy use of CPF for housing reduces retirement savings.
ChainState supplies land and builds flats → housing supply ↑ → prices lower than a free market would set → home ownership ↑ → wealth spread widely, political stability.
JudgmentSingapore's housing works because the state owns most land, which few countries can copy. It shows intervention can correct market failure, but also risks government failure on pricing and leases.
To what extent can rich economies reduce inequality without high taxes?
4.2
Can- Gini cut from 0.452 to 0.379 with low taxes.
- Workfare and Progressive Wage Models raise low pay.
- Public housing spreads wealth.
Limited- Still more unequal than most European economies.
- No general minimum wage.
- Migrant workers excluded from the data.
ChainTargeted wage top-ups → higher take-home pay for low earners → incentive to work kept → income gap narrows at lower fiscal cost than universal benefits.
JudgmentTargeted help reduces inequality while protecting incentives, but the effect is smaller than in high-tax states. The trade-off is between efficiency and equity.