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(half way done) Governments generally face tradeoffs between different…

- - - - state the problem arising from this:
        
        will cause increase in px of exports
        
        decrease X competitiveness
        
        open economy
        
        negative impact more substantial
        
        implication on policy decisions
        
        less likely to adopt such dd mgt policies
        
        less open eocnomy
        
        negative impact less substantial
        
        implication on policy decisions
        
        rely on domestic sources eg increase in C and I to increase AD instead of (X-M)
        
        more likely to adopt such policies
  - - - T: extent to which economy is open
        
        open economy
        
        eg Singapore
        
        faces large and quick mvt of labour
        
        our level of unnmt is quite substantial
        
        Despite this, using SSP is still top priority
        
        w/o it the economy will weaken and have less EG over time
        
        EV:
        
        LR vs SR: over time the severity of the unnmt will decrease and thus employment should increase
        
        govt can adopt other SSP eg retraining to improve the skills of workers
        
        less open economy
        
        more insulated from the negative impacts of labour flows
        
        smaller extent of strucutral unnmt
        
        Hence, they are more likely to put in place protectionist measures
        
        allows them to buy time for declining industries
      - AT: other factors
        
        govt position
        
        consider whether the govt has money to implement SSP
        
        political considerations
        
        if the impact is so large that there is social discontent, then the govt need to delay implementing SSP
  - - - T: Extent to which the economy is open
        
        more open economy
        
        X have a large proportion of M content
        
        preventing cost push inflation by using appreciating exchange rates helps to lower the price of X
        
        the impact on export competitiveness might not be that large
        
        price stability
        
        attract FDI (to do with FA)
        
        impact on BOP position is not that severe
        
        Hence
        
        Since the trade off between favorable BOP position is less severe, countries are still going to keep their currency on gradually appreacting stance
        
        EG sg: MAS does this
        
        EV:
        
        govt can adopt SSP
        
        give eg
        
        less open economy
        
        not import reliant
        
        their X content does not contain a lot of M contnet
        
        their X competitiveness will decrease greatly
        
        less likely to appreciate their currency, they adopt other measures
      - AT: Other factors
        
        depends on the persistency and severity of the BOP deficit
        
        if the economy is alr facing BOP deficit
        
        app currency to worsen deficit
        
        decrease X-M
        
        ss of DC in forex mkt increase
        
        dep currency
        
        investors lose confidence + govt have to spend reserve to buy back the DC
        
        Instead of looking at how open economy is, how detrimental the deficit is will push the economy to look at how to solve the BOP deficit before looking at price stability