Consider the effects of a global shortage of microchips that are used in a range of products including personal electronic devices and cars, etc. For a country such as Singapore, this development will, ceteris paribus, likely result in a short-run increase in CPI and hamper economic growth.
Consider a scenario where a firm has taken out a loan to finance the purchase of robots that it will use in production. Assume that the nominal interest rate at the time the loan was created is 8% and the expected rate of inflation was 5%. If inflation ends up running higher than expected at 9% the firm will make a loss and would have been better off not undertaking the investment in robots.
Governments need to play a role in helping stabilize the economy and furthermore because of their efforts to promote economic growth, this ultimately increases the living standards experienced by everyone in a country in a manner that is more equitable compared to if the government played no role and only market forces prevailed. Discuss.
Drawing upon the principles of the loanable funds market model, assume that the government slashes its spending while there is no change in taxation and holds constant all other factors in the economy. This policy is likely to have a positive effect on (planned) private investment in the economy. “Private investment” refers to investment in physical capital by firms and residential investment by households.
Consider a prosperous open economy such as Singapore. If Singapore’s saving rate is 25%, while its investment rate is 20%, the economy will experience a trade surplus, meaning that receipts from exports exceed expenditures on imports.
