Mar 11 2010
Helping Singapore become an advanced economy
Published by Andrew McCarthy at 11:20 pm under Keynesian Economics,Recession,Supply-side economics
Singapore is an economy which is operating at a level which is very close to its full potential. The island has no natural resources, very little spare land and a small but educated workforce. The recent global financial crisis, highlighted Singapore’s vulnerability to changes in the global economy. Singapore is very export dependent country with a large positive trade balance.
The latest government budget was announced here last week and the focus has shifted towards improving productivity in the economy to make it more resilient to these external shocks in the future. The shift has been from Demand Side Policies a year ago, at the depths of the recession, to Supply Side policies in the recovery phase.
Singapore has always been considered one of the original Four Asian Tigers. The four tigers (Hong Kong, South Korea, Taiwan and Singapore) were economies, which shared the free market policies and outward looking, export orientated philosophies. All four countries were newly industrialized, and throughout the period between the 1960’s and 1990’s they all experienced exceptionally high rates of economic growth. More recently other countries tried to follow this model on a road to development.
A picture of the CBD from near my apartment.
A full description of the budget is here. Most of this is copied below, along with my comments. When you read the article think about the four discussion questions at the end of this post.
S’pore unveils Budget aimed at helping country become advanced economy: By Imelda Saad, Channel NewsAsia | Posted: 22 February 2010 link
SINGAPORE: Finance Minister Tharman Shanmugaratnam has unveiled a Budget aimed at helping Singapore become an advanced economy.
A key theme of the Budget: raising the quality of jobs, skills and the workforce so that workers can continue to earn higher incomes, and the economy, grow.
Singapore emerged from the global financial crisis better than expected, with an overall budget deficit of S$2.9 billion for FY 2009 – much lower than the original S$8.7 billion shortfall projected a year ago. This year, it is expecting a deficit of S$3 billion, as it spends on areas to boost productivity. The government’s key focus is to raise productivity by 2 to 3 per cent a year over the next decade. This will allow Singapore to maintain a healthy rate of economic growth of 3 to 5 per cent a year, even with a slower growth in the labour force.
The government has therefore managed its spending and revenues in the previous 12 months so is now in a position to spend money to boost the future prospects of the economy. This is unlike some other nations such as the United Kingdom which is searching to cut spending to reduce future budget deficits.
The finance minister said the Budget 2010 set out ways to help Singapore succeed with new growth strategies. Hence the plans seemed to focus more on the long-term growth and health of the economy, and not just the short-term position. The government has set aside S$5.5 billion over the next five years to help enterprises and workers raise productivity.
Mr Tharman said: “Raising skills and productivity is the only viable way we can achieve higher wages and is the best way to help citizens with low incomes. If we achieve this goal, we can raise real incomes by one-third in 10 years.”
The Finance Minster is focusing on long-term growth and the health of the economy. This suggests that Singapore is using supply side policies to increase the potential capacity of the economy and shift the Long Run Aggregate Supply curves towards the right. From a Keynesian perspective, supply side policies are effective when the economy is approaching it’s full potential. The policies are considered ineffective when the economy is a recession with depressed aggregate demand. This idea is illustrated below. (note: the same policies can also be illustrated slightly differently, using a neoclassical perspective of LRAS)
The minister signalled that some painful decisions may have to be taken. Less-efficient industries may have to exit Singapore, as the economy continues to restructure. Mr Tharman said the government must rely on the market to achieve this restructuring. Industries and companies will be given help to upgrade through tax benefits and grants to help to innovate and raise productivity, and invest in R&D and automation.
More will be pumped into raising the skills and tapping the potential of every worker. But this will have to be offset by reducing Singapore’s dependence on cheap foreign labour. To encourage companies to rely less on foreign workers, the government is imposing higher levies on foreign workers in phases over the next three years.
The government will pump in S$2.5 billion in over 5 years to enhance Continuing Education and Training.
It will also set up a high-level National Productivity and Continuing Education Council – to be headed by Deputy Prime Minister Teo Chee Hean – to develop a comprehensive system for lifelong learning. In addition, there will be help for older and low-wage workers in a new Workfare Training Scheme. The scheme is aimed at incentivising employers to send older workers for training by providing companies with up to 95 per cent funding for absentee payroll and course fee outlays.
For companies, there will be a Productivity and Innovation Credit so they can get tax deductions for investments in R&D and automation. There are also a slew of measures to help grow more globally competitive Singapore companies. These include tax deductions for angel investors, growth capital for SMEs and incentives to expand sectors with high growth potential.
The government also wants to ensure that no one is left out as it pushes for more inclusive growth, by taking care of the lower and middle income. For example, property tax will be tweaked to be more reflective of the annual values of homes.
Mr Tharman said: “Taking all our measures together, we will be spending S$1.4 billion this year in direct transfers for households. While most Singaporeans will receive some benefits, more will go to those with lower and middle incomes.”
In wrapping up the nearly two-hour speech, Mr Tharman said while the government will commit substantial resources to support the national effort of restructuring the economy and improving the quality of jobs, the success of this will depend very much on the ingenuity and drive of Singaporeans and companies here.
Discussion Questions:
- Explain why in Singapore demand side policies were favoured during the recession, but now Supply Side policies are being introduced.
- Explain how one of the suggested policies will affect the labour market and therefore the level of aggregate supply in the economy.
- What does the finance minister mean by the phrase “no one is left out as we push for inclusive growth” and how does the government support inclusive growth?
- Evaluate the short run and long run effectiveness of supply side policies to increase the level of Real GDP in Singapore.
About the author: Andrew is an International School educator based in Singapore, who specialises in teaching Economics and leading change in a 1:1 Apple laptop environment. He enjoys teaching the International Baccalaureate curriculum and has taught the Diploma Economics course to both Higher and Standard Level students. Previously Andrew taught in New Zealand as a Geography and Economics teacher and eLearning coach. He is an adventurous New Zealander, who enjoys running, travelling and spending time with friends and family.
Andrew is currently the head of Educational Technology at the United World College of Southeast Asia. Read more posts by this authorRelated posts:
1. During the recession demand side policies were favored because if the AD increased the country would be closer to reaching it's potential. Now since the recession is over supply side policies are favored as is AS increases then for the same amount of output can be produced for cheaper.
2. Their strategy to set 5.5 billion to increase worker education and productivity so that in the LR low wage earners will gain higher wages.
3. The finance minister mean's that all level's of wage earners will be able to gain benefit's from singapores new policy.
4. In the SR it will make the cost of production decrease and in the LR it will cause an increase in wages.
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1.) Demand side policies were preferred during the beginning of the recession because the government thought that with consumer spending, Singapore could stay out of the worst of the global recession. Now that they have been quite affected by the recession, Singapore has turned to supply side policies to increase productivity. They are using forms of the Keynesian perspective by spending government money to stimulate the economy, while at the same time increasing taxes (like the levies on foreign workers) to increase productivity, eventually resulting in a growth in the economy. Supply side policies also affect the LR and not the SR, therefore Singapore is looking into the future, as the article stated, rather than trying to work on the present situation.
2.) The financial minister announced an increased levy on foreign workers, therefore telling employers to rely less on them. But as the levy was added, it is expected that because employers have to pay higher taxes on workers, they are expected more of them. This is a supply side policy that will hopefully increase productivity of Singapore’s workforce, and stimulate economic growth, resulting in the increase in economic activity in the LR.
3.) With the supply side policies, the government is directing its attention to increasing productivity. In a way, the government is making it easier for firms to produce more efficiently, allowing the business to raise revenue, thought the financial minister leaves out the demand issue.
4.) In the short run, supply side policies are almost ineffective because firms are simply producing more. It will take time for aggregate demand to increase though, so it is not until the LR that these supply side policies will be affective.
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4. The effectiveness of such supply side policies will be much more evident in the Long run because it would take time for such policies to show their results. Additionally the graph shows that the major changes would happen when real GDP is already close to full employment, which is untrue for the current situation seeing as there is a recessionary gap.
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1) AD was favoured during the recession because they needed it to get out of the recession because it was too low and they needed it to also get close to their full potential. Now that the recession was out of the way the supply side policy was favoured in order to increase productivity.
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Some good comments Jakeb. Think the issue about increase levies (taxes) on foreign workers in an interesting policy (could be an extended essay in there somewhere). In the SR this will increase the costs of production, but in the LR perhaps this may help wean firms off their dependence on foreign workers. The evaluation is that for many of the construction jobs available most Singaporean's would not be willing to work for such low pay in poor conditions.
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1. Singapore favored the demand side policies during the recession because they needed to increase the aggregate demand in order to get out of the negative real GDP situation. However now with the recession out of the way supply side policies are favored as the country aims to increase productivity and to lower firms’ costs, thus increasing the aggregate supply in the economy. As a result allowing the economy to achieve a higher real national income without having to experience inflation at an earlier stage.
2. One of the suggested policies is spending more money on education and training on the workforce so to raise quality of jobs and provide higher incomes for the skilled workers. “The government will pump in S$2.5 billion in over 5 years to enhance Continuing Education and Training.” Thus higher incomes lead to economic growth. Furthermore raising quality of jobs would increase productivity and so aggregate supply increases.
3. The phrase implies that the suggested policy would be beneficial to everyone including the people earning lower and middle incomes. The government will try to support this for example by adjusting property taxes according to annual values of homes.
4. In the short run supply side policies are not as effective as training would take some time to show its effect, however at the same time budget deficits rise. In the long run workers would have acquired skills so they earn higher incomes, therefore productivity increases.
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3. By “no one is left out as we push for inclusive growth,” the finance minister is assuring the nation that everybody can benefit from the new supply-side policies. With the mentioned increase in productivity and skills of the laborers, the increase of wages earned per worker will also increase. This is beneficial because higher wages for the workers equals higher disposable income, which leads to an increase in aggregate demand. The government supports inclusive growth by taking care of the lower and middle income as well. "For example, property tax will be tweaked to be more reflective of the annual values of homes."
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3) What does the finance minister mean by the phrase “no one is left out as we push for inclusive growth” and how does the government support inclusive growth?
The finance minister means that besides the implications its supply-side policies will have on the growth of Singapore's entirety, there will be implications on aggregate demand. These implications include increased productivity and the growth of middle and lower class incomes by increasing wages and changing the property taxes to reflect the actual values of homes. This will increase disposable income and therefore aggregate demand.
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Evaluate the short run and long run effectiveness of supply side policies to increase the level of Real GDP in Singapore.
In the short run, the supply side policies will be ineffective because it takes a while for training to show In the long run, LRAS will shift to the right as workers will have a higher skill level and be able to earn higher incomes, making them more productive.
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Explain how one of the suggested policies will affect the labour market and therefore the level of aggregate supply in the economy.
Imposing a tax on foreign workers, will shift the aggregate supply. Supply will decrease, because of the cost of the foreign workers and GDP will increase, because more of the money will stay in Singapore.
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In the short run supply side policies are not as effective as it takes some time for you to see the effects (such as training and/or increasing the productivity of workers). At the same time budget deficits rise and although output increases it take some time before the effects show in AD. In the long run workers would have acquired the appropriate skills so they earn higher incomes, therefore productivity increases.
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2. Explain how one of the suggested policies will affect the labour market and therefore the level of aggregate supply in the economy.
Imposing a tax on foreign workers will encourage firms to hire more labor from Singapore. This will, while decreasing foreign labor availability, increase costs for firms, meaning that they can produce less for the country. However, more of the money will stay in Singapore, increasing GDP and the multiplier, which might help getting out of the recession. Though aggregate supply decreases, more money would be kept in Singapore's economy, helping in the long run.
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1) During the recession demand side policies were favored because if AD shifted to the right then Singapore would be closer to reaching its full potential. Now that the recession is over supply side policies are focused on increasing productivity and to lower firms costs which will increase AS in the economy.
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1. Demand-side policies were favored during the recession because AD was too low, once AD was restored to the equilibrium point, and the NRU was in place, supply-side policies were favored to further promote economic growth, because more demand-side policies would cause inflation.
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During the recession AD decreased so the aim was to move it back to where it was. However when the recession was over and they had recovered Singapore decided to focus more on AS policies (such as increasing productivity and lowering firms costs) in order for the country to be more resilient in the future to an external economic crisis.
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Innovation management…
[...] Networks and Networking – It begins with a critical review of the literature on knowledge management, arguing that its focus on IT to create a network structure may limit its potential to promote knowledge sharing among social. [...]…
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The supply policies would not be able to work while the country is in a recession. Therefore the demand policies needed to be moved in order to help the country out of the recession. Supply is then used for the times when the economy is starting to come back from a recession to economic growth. They use the supply policies to increase productivity.
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The demand side policies were favored during the recession because they needed a short term gain to aid the economy out of the recession and therefore increasing the spending. They now focus on the long term gain which is the supply side policies. These help to increase the income of the economy as well as productivity which they can now focus on since they are coming back from a recession. Setting aside 5.5 billion to help worker education and productivity increases wages all leading to an increase in aggregate supply.
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It seems that Singapore is trying to build up its economy to be a rival to Japan. With its' lack of resources, it will have to become a service economy, which will force it to directly compete with the US and Japan.
In response to the discussion questions
1) During a recession, demand is reduced because of the lack of funds available, during non-recession periods, increasing supply allows the country to export, increasing GDP.
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Demand side were favoured during a recession because of the low demand during these periods. They changed to supply side so that demand doesn't get to much and inflation kicks in and also so they can increase there output increasing there GDP.
One of the policies is to improve the education system within Singapore this would lead to higher wages and salaries and will continue to increase the economic growth. By increasing the quality and the skills of the workers they will become more efficient and therefore this will also help economic growth and and increase in the aggregate supply.
This is how he will include everyone as he will change the ability and productivity of the workforce within Singapore therefore leading to a higher wage. This means that all levels of the socio economic groups will be effected by these changes but would be more significant in the lower groups.
In the short run there will be no real effect if supply side if we consider ones such as an improvement in the education than this would take a while to have an effect on the workers as they have to be trained or study under the new system. In the long run they become very effective making workforces more skilled and efficient.
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Hawkins,
I like the idea that you posed considering singapore to become more like japanese. The japenese holds a very unique workforce and work ethic that is very hard to match and has made them the economy of today. I think that singapore will be very similar japan but will have different characteristics.
Dan
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1. Explain why in Singapore demand side policies were favoured during the recession, but now Supply Side policies are being introduced.
During the recession, aggregate demand was too low. Demand side policies were necessary to bring it back to the equilibrium level. After the recession, however, demand side policies would simply be inflationary. Supply side policies are necessary to ensure continued economic growth.
2. Explain how one of the suggested policies will affect the labour market and therefore the level of aggregate supply in the economy.
One suggested policy is increased education spending. This means the labor force will be more highly skilled and more productive. Long run aggregate supply will increase.
3. What does the finance minister mean by the phrase “no one is left out as we push for inclusive growth” and how does the government support inclusive growth?
This suggests that the policy is intended to help everyone. An increase in aggregate supply means an increase in output and a decrease in prices. This is indeed good for everyone.
4. Evaluate the short run and long run effectiveness of supply side policies to increase the level of Real GDP in Singapore.
In the short run, supply side policies like education spending won't have time to be effective. Aggregate supply won't increase much. In the long run, however, they will have more time to take effect.
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Daniel,
You mention that these policies will result in higher wages. This isn't necessarily good for everyone, because it means higher costs for firms. In some situations, then, firms will be forced to raise prices to compensate. This is cost-push inflation. I think the thing here is that rather than wages increasing, an increase in aggregate supply means that prices will decrease. Firms produce more to make up for the lower prices. In this case, there shouldn't be any inflation.
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Before the economy began to reach its full potential, government officials had to fight the affect of the recession which is a lack of aggregate demand. The best way to do this is to initiate demand-side policies such as personal tax cuts and increases in government spending to improve the different parts of GNP and therefore, aggregate demand. When at full capacity, however, demand-side policies create inflation. So instead, supply must be increase so that a greater output can be reached. This is why supply-side policies are called for.
The policy of “tweaking” the property tax to be more “inclusive” suggests an increase (shift to the right) of the labor supply curve. This will have the effect of decreasing the wage level and increasing the output of firms.
He means that the growth in people who are employed will not be feared specifically towards a group such as upper-middle income. The skills and abilities of all sectors of the economy will be utilized. The government supports this kind of growth by making policy that addresses some of the main factors that contribute to some groups’ perpetual poverty.
In the short-run, it seems that such policies will have little effect on the economy of Singapore. They rely on broad policy changes and a change in the psyche of a whole country of workers in order to achieve specific aims. On the other hand, such policies may help the economy in the long-run, so long as workers’ quality of livelihood isn’t sacrificed too much. This will increase the level of the LRAS curve and move output out farther.
Trevor Tezel
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Mattea,
Interesting that you mention education spending when discussing supply-side policies. I had chosen a different one when composing my blog response. This definitely is a long-run goal of the economy: to have its children educated to outcompete and beat the foreign competition. We did have different opinions on what it meant by “inclusive growth” in the economy and I see what you mean on yours. Great post! ?
Trevor Tezel
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1. Singapore favored the demand side policies during the recession because they needed to increase the aggregate demand in order to get out of the negative real GDP situation. However now with the recession out of the way supply side policies are favored as the country aims to increase productivity and to lower firms’ costs, thus increasing the aggregate supply in the economy. As a result allowing the economy to achieve a higher real national income without having to experience inflation at an earlier stage.
2. The financial minister announced an increased levy on foreign workers, therefore telling employers to rely less on them. But as the levy was added, it is expected that because employers have to pay higher taxes on workers, they are expected more of them. This is a supply side policy that will hopefully increase productivity of Singapore’s workforce, and stimulate economic growth, resulting in the increase in economic activity in the LR.
3. With the supply side policies, the government is directing its attention to increasing productivity. In a way, the government is making it easier for firms to produce more efficiently, allowing the business to raise revenue, thought the financial minister leaves out the demand issue.
4. In the short run, supply side policies are almost ineffective because firms are simply producing more. It will take time for aggregate demand to increase though, so it is not until the LR that these supply side policies will be affective.
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trevor,
good answer, maybe, if you like, next time you could use some examples to amplify your answer…
-Laura-
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1. In Singapore, demand side policies were favored during the recession because they helped to raise aggregate demand. Now supply side policies are being introduced because the nation wants to increase its output/aggregate supply.
2. If the government invests more in education, then the workforce will be more skilled. This will raise personal output and therefore aggregate supply.
3. The finance minister means that he hopes that as the government supports help to those with lower incomes and universal increases in training and education that will hopefully help to increase output and therefore the welfare of all people.
4. In the short run, supply-side policies will not be that effective. Education and increases in productivity will do little in the short run. In the long run, however, these policies will increase demand and help people to operate more effectively.
Chamonix
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Trevor,
I thought that it was really interesting that you commented on the livelihood of the workers. I agree, agressive supply side policies could be difficult on wages. If businesses wanted to increase their output, then they would of course want to keep costs low. This means that wages would probably not change too much despite rises in output. Either workers would have to be willing to take the lower wages or the government would need to find a way to compensate workers (tax cuts, etc.)
Thanks for raising this interesting and important point!
Chamonix
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Explain why in Singapore demand side policies were favoured during the recession, but now Supply Side policies are being introduced.
Recession is when the economic growth measured by the GDP is low and the consumer consumption is low. The demand-side policy like reducing income tax and increasing disposable income would induce consumer to spend more money for goods and increase the aggregate demand, resolving issues of low employment. Just as the term indicate, the policies target to strengthen the demand for goods and increase aggregate demand.
Explain how one of the suggested policies will affect the labor market and?therefore the level of aggregate supply in the economy.
The minister said, “Industries and companies will be given help to upgrade through tax benefits and grants to help to innovate and raise productivity, and invest in R&D and automation.” Introduction of tax benefits in the form of tax exemption or tax rate deduction, the firm will have more capital fund to develop more less costly and efficient machinery and expanding the capacity of the firms to take in more educated workers. The aggregate supply will shift to the right because education of the low-skilled workers increase their ability to do multiple tasks and the expansion of firm size would accept these labors.
What does the finance minister mean by the phrase “no one is left out as we push for inclusive growth” and how does the government support inclusive growth?
Because Singapore is near a full employment of resource, there are already not much people excluded from the system. The inclusive growth refers to the education of the workers who are already employed to improve their skill and increase their abilities to take various jobs. The government would support he inclusive growth by allocating their capital into education and health care. Education would increase individual skills and health would increase the life span of the workers, contributing to the long term aggregate supply.
Evaluate the short run and long run effectiveness of supply side policies to increase the level of Real GDP in Singapore.
There wouldn’t be not much positive effect in the short run as firms who have failed to become more efficient and match up with pace of the economy will be kicked out. In addition, the effect of the policies do not become apparent in the short run – in the long run. If the policy is successful, the supply-side policy would shift the aggregate demand to the right increasing the real national output and increasing price levels, accompanied by the change in real wage.
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@Laura
Its not only the firms who are going to be effected by the supply-side policy. Education of the low-skilled workers would develop a higher-quality skill and make them a more valuable worker to the firm. The Singaporean government is facing away from "quantity" but rather "quality"
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welldone, these posts an excellent record of good analysis and linking concepts from the classroom to examples in the real world. Except these examples are on the other side of the world to Zurich !
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1. During the recession, demand side policies were favored because, when GDP and consumption is low, demand side policies to increase the disposable income of consumers would encourage consumption and, if successful, would result in an increase in AD, alleviating unemployment.
The recent financial crisis has highlighted the vulnerability of Singapore's economy to changes in the global economy. The government has shifted towards emphasizing supply-side policies during Singapore's recovery phase because it wishes to strengthen the country against external shocks. The government hopes to use supply side policies to raise productivity, so that Singapore can maintain a healthy rate of economic growth, even with a slower growth in the labor force. As Singapore is an economy that is close to its full potential, it is wise to implement supply side policies during this time, because they will shift the LRAS curve to the right (but only the vertical parts), which indicates the productive potential of the economy has improved, so a higher real national income can be achieved before the costs of inflation set in.
2. One of the suggested policies is to 'pump in S$2.5 billion over the next five years to enhance continuing education and training. If successful, this will mean a more highly-skilled and productive workforce. This means that the output of each individual will increase, and result in an overall increase in aggregate supply within the economy. However, it is likely to take some time before the effects of this will become apparent.
3. By 'no one is left out as we push for inclusive growth', the finance minister means that the intention is for the benefits of economic growth to be experienced by all Singaporeans, including the middle and lower income groups (who can often loose out on the positive side effects of economic growth), and not just the upper income groups.
4. In the short run, I do not think the supply side policies will have much effect on the real GDP of Singapore. This is because most of the policies aim at achieving long term benefits, for example investment in education and encouraging the employment of older people, and investing in sectors with 'high growth potential'. These policies will take some time before their benefits manifest themselves. Therefore, it is more likely that the supply-side policies will pay off in the long run by increasing the productive potential of the Singaporean economy.
—-
Dear Trevor,
In your comment to Mattea, you said that a long-run goal of the Singaporean economy, or any economy really, was to to have its children educated to outcompete and beat the foreign competition.' I agree with this. Another factor to weigh in though is that many people entering the workforce today, especially people now graduating from university, have been raised with unrealistic expectations about the incomes they will earn when they get their first job. This is especially true for people who have done higher degree levels, and this problem will have been made worse because of the financial crisis. Heavy investment in education, specifically continuing education, might create a problem of expectations in the Singaporean economy, whereby graduates cannot find jobs (if the economy has reached near to full capacity), and are unwilling to settle for less.
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1. Explain why in Singapore demand side policies were favoured during the recession, but now Supply Side policies are being introduced.
The main cause of a recession is a fall in aggregate demand, and the best way to solve it is, logically, by increasing demand, through demand side policies. However, when the recession has been solved, continued demand side polcies would only cause inflation, supply side policies would ensure economic growth.
2. Explain how one of the suggested policies will affect the labour market and therefore the level of aggregate supply in the economy.
A better education, through an increase in government spending for it: the workforce will have a better training, thus better skills, and will produce more.
3. What does the finance minister mean by the phrase “no one is left out as we push for inclusive growth” and how does the government support inclusive growth?
This means that the policy will not discriminate against any social class, nor reinforce divisions, but will actually benefit everyone at the same level, through an increase in output and lower prices.
4. Evaluate the short run and long run effectiveness of supply side policies to increase the level of Real GDP in Singapore.
Education in the short run is pointless; the only way to benefit from it is in a few years, when the ones who received it are able to apply it.
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Laura,
I was a bit concerned by your sentence "In the short run, supply side policies are almost ineffective because firms are simply producing more," I found it a bit confusing. I thought that the aim os supply side policies was to produce more; but if they are producing more, why would they be ineffective? I will not sleep tonight…
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1. During the recession, aggregate demand was at a very low point, which made demand side policies necessary to bring it back to the equilibrium level. After the recession, however, demand side policies would simply be inflationary, therefore supply side policies would be necessary to ensure continued economic growth.
2. One suggested policy is increased spending on education. This policy would make the labor force become more highly skilled and more productive, causing long run aggregate supply will increase.
3. This suggests that the policy is intended to help everyone. An increase in aggregate supply means an increase in output and a decrease in prices, which turns to be good for everyone.
4. In the short run, supply side policies like education spending won’t have time to be effective. Aggregate supply won’t increase much. In the long run, however, they will have more time to take effect.
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Marcelo,
I like how you got straight to the point in your answers, which we both clearly agree on. One thing I really don't like about IB is how we need to know every single answer to everything rather than just one answer and its nice to have things like this blogosphere where we can just answer straight to the point. Besides that, excellent answer.
-Dennis-
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1. During the beginning of the recessions, demand side policies were preferred because the government thought that Singapore would be capable of staying out of the worst of the global recession as long as there was consumer spending. Because they have been affected by the recession, the government introduced supply side policies to increase productivity. They are spending government money to stimulate the economy, while also increasing taxes to increase productivity which should eventually result in a growth in the economy. Supply side policies affect the Long-run, which means Singapore is focusing more on the future.
2. An increased levy on foreign workers means that because employers have to pay higher taxes on foreign workers, they will look more into hiring local workers. This will hopefully increase Singapore’s workforce and decrease unemployment, stimulating economic growth and resulting in an increase in economic activity.
3. The phrase means that all different levels of wage earners will benefit from the new policy. The government supports inclusive growth by taking care of the lower and middle income as well. “For example, property tax will be tweaked to be more reflective of the annual values of homes.”
4. In the short-run supply side policies are not very effective because training will take time and firms simply produce more. In the long-run aggregate demand will increase, however and workers will have acquired the necessary skills so they earn higher incomes, and productivity is increased.
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Marcelo,
The problem with firms only producing more is that the workers have still not been trained correctly and te production may be bad quality. The fact that in the long run the workers become better trained means that the work will be better and the demand will increase more as well.
Sara
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1. At the beginning of the recession, the demand side policies were preferred as the government thought they could escape the recession, only if there were consumers consuming, even though this would be a long run process; this cause an increase of productivity and taxes, finally causing a growth in the economy. However, a fall in aggregate demand will benefit too
2. An improvement of the education, by the government putting money for it, causing a better training and improvement of skills.
3. I believe that the phrase means that the policy won't have prejudice or be unfair against any other social classes, causing an increase in the demand, meaning more products being made and lower prices.
4. Education needs time, so it’s not a short run process, in order to have better training and a higher development of skills.
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Marcelo,
I agree with you that theway to reduce this problem is to reduce the aggregrate demand. In addition, the fact that the education is a long run process.
Armando
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1. Explain why in Singapore demand side policies were favoured during the recession, but now Supply Side policies are being introduced.
Singapore believed that it would survive the global recession with the demand side policies, as long as consumer spending remained at the same level. Clearly consumer spending would not remain the same, and soon enough Singapore would have to react to the changes in the economic station. Supply side policies will help to maintain Singapore's growth, as well as performing better then the other 4 Tigers.
2. Explain how one of the suggested policies will affect the labour market and therefore the level of aggregate supply in the economy.
Improved training and education, will enable future employees to become more efficient, and possibly gain senior positions thus earning higher wages. These higher wages will lead to the possibilty of increased consumption, thus causing economic growth.
3. What does the finance minister mean by the phrase “no one is left out as we push for inclusive growth” and how does the government support inclusive growth?
That the economy will grow as one whole nation together, that there are no divides between social milleu's. The government will do so by providing the less wealthy with more training and education.
4. Evaluate the short run and long run effectiveness of supply side policies to increase the level of Real GDP in Singapore.
This plan is all long term, as training will take time as well as recieving promotions for the senior positions which could lead to higher wages. There won't be many short term effects.
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1) Explain why in Singapore demand side policies were favoured during the recession, but now Supply Side policies are being introduced.
The Singapore government has the Keynesian view on the LRAS curve, which is why, in a recession, they will stimulate demand in order to bring the economy out of its recessive state, and now are using supply side policies since Singapore's AS is almost at its full potential – almost vertical, and if they were to stimulate demand at this point this would have inflatory effects.
2) Explain how one of the suggested policies will affect the labour market and therefore the level of aggregate supply in the economy.
An increased spending in education and worker's training would lead to increased productivity and therefore also stimulate Singapore's aggregate supply. Workers would be more skilled in different areas and thus structural unemployment would be avoided as workers will be able to accept more jobs in different areas.
3) What does the finance minister mean by the phrase “no one is left out as we push for inclusive growth” and how does the government support inclusive growth?
He means the government will strive to help everyone, including people earning lower or middle incomes. They will do this by reflecting the values of houses on property tax, but also by “raising skills and productivity” in order to raise income levels over the long term.
4) Evaluate the short run and long run effectiveness of supply side policies to increase the level of Real GDP in Singapore.
In the short run, supply side policies would have nearly no effect at all and may increase the government budget’s deficit. It takes time for supply side policies to have their effect, but when they do, and that is in the long term, they will increase the output and economic potential of the economy and also the wages of the workers, as the government investment in education and training will cause higher productivity. Supply side policies would additionally not have the same inflatory effects as demand side policies, as they will cause the LRAS curve to shift to the right rather than pushing aggregate demand curve upwards.
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Meiling,
I like how you mentioned how heavy investment in education might result in less employment as graduates might have higher expectancies over their jobs. I had not thought of that and it was an interesting link to make. Nevertheless what I presumed was that the education supplied by the Singapore government would train the population in different areas so workers could handle various jobs and structural unemployment could be avoided. Do you think there is any way in which the government could lower these high expectancies? Or would this simply reduce productivity of the workers?
-Eline
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[...] For a comparision to the recession budget of 2009 see 3.4 – ST article – financial crisis budget, or for an overview of last years budget see a post here about Helping Singapore Become an Advanced Economy [...]
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