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The Central Bank has raised interest rates from 0.1% in 2015 to 0.7% in…

- - - - unemployment
        
        Since there is lower AD
        
        firms decrease the production
        
        since dd for labour is derived, there is demand deficient unNmt
      - px stability
        
        Since there are fewer people getting hired
        
        workers will try to lower their wages to attract employers
        
        COP falls
        
        px of g+s falls
        
        lost px stability, in fact we will have a deflation
      - economic growth
        
        In the long run,
        
        lower investment and also fewer FOP would cause a slower increase in LRAS from LRAS0 to LRAS1
        
        hence potential growth is limited
      - mention the change in AD first
        
        interest rates in US increase
        
        fall in I and C
        
        fall in AD
        
        GDP is decreased by a multiple (use the exp you memorised)
        
        decrease pp for singapore goods
        
        (X-M) decrease
        
        decrease export revenue for singapore
        
        a fall in AD will also cause a poor ecnomic outlook
        
        investors from US less likely to invest in Singapore
        
        lower FDI in sg
        
        Say that given the econmy was initially operating under full employment, there will be a shift in AD (decrease)
        DRAW DIAGRAM
    - - there are hot money flows out of sg
        
        worsen out current accounts position
        
        worsen our BOP
  - - - points
        
        explain the change in AD first
        
        EFP
        
        involves increasing G and decreasing T
        
        increasing G can be done by... (memorised in pump priming exp)
        
        decreasing T can be done by... (memorised in pump priming exp)
        
        this causes an increase in AD
        
        explain the multiplier part (memorised in pump priming exp)
        
        increase in real gdp by a multiple
        
        Potential economic growth
        
        when there is decreased CIT
        
        after tax profits increase for firms
        
        firms are engourgaed to invest
        
        potential economic growth
        
        solves unnmt
        
        increase in AD
        
        increase in dd for g+s
        
        dd deficient unnmt is solved
        
        combat deflation and px instability
        
        if the economy is operating near Yf
        
        increase in dd causes increase in dd for FOP
        
        higher prices of FOP
        
        px of g+s increase
        
        combat deflation and px instability
        
        EV
        
        EFP generally has a more direct impact (compared to ERP for eg, or MP which does not even work)
        
        but sg has a small multiplier value, so the change in G, C and I might not be that effective (also note component of C as a portion of AD is small in sg)
        
        time lag: recognition lag => too much increase in G => inflationary pressures
    - - erp
        
        if the CB adopts a zero appreciation stance
        
        exchange rates remain low
        
        px of imports in DC increase, px of exports in FC decrease
        
        assuming MLC
        
        increase in X-M
        
        AD increases
        
        EV:
        
        MLC might not hold, because the people might not switch to sg exports immediately since they are bound by conractual obligations to purchase from other suppliers
        
        imported inflation into sg
      - ssp
        
        with increase G on retraining workers
        
        eg skillsfuture
        
        increase qly of workers, allow workers to gain skills
        
        solve structural unnmt
        
        with increasing G on providing grants to firms to engage in R and D
        
        more productive workforce and production process
        
        attract investment
        
        increase LRAS
        
        since AD will also increase, this causes sustained economic growth
        
        EV:
        
        it is not entirely successful as it takes time to see results
        
        it is expensive and difficult to change the mindset of workers