Get What You Want

With the A Levels around the corner, I’ll be spending the next couple of weeks churning out free high quality content for you. Yes, you, my loyal reader. In the past few months, I have been sharpening my edge at NIE. Now, I have quite a few new tricks up my sleeve. I want to help you maximise your learning and revision time.

But I need your help to do so. You see, I can’t read your mind, so I don’t know what areas you need the most help with. Do me a favour and answer a short 2-minute questionnaire:

Redistributing Income

Here’s an interesting article from this week’s The Economist.

Outlaw economics

In H2 Macroeconomics, you may recall that we often assume that the poor may have a larger marginal propensity to consume (MPC) than the rich. This implies that, if we redistribute income from the rich to the poor, more money will be spent in the economy. This can act as a fiscal stimulus for the economy.

Recent research supports this line of thinking but suggests a more nuanced definition of rich and poor is required. The main finding as described in the article is as follows:

5 MOL! — The Miracle of Capitalism

The implications of what we discussed yesterday are profound for modern society. Most of you reading this will end up working in specialised jobs that take advantage of your unique talents. For your skills to add value to society, you don’t have to be the best1; you just need to have a comparative advantage.

Turns out comparative advantages can be developed. Like what we mentioned a few posts ago, the PPC is a description of a fixed point in time. Over time, through specialisation, you and I can become better at our jobs as we learn-by-doing. This creates greater comparative advantage. This is also why education and training are so valuable — they help people develop new comparative advantages or build on existing ones.

2014 A level H2 Economics Review: Macroeconomics Qn 4

The following data relate to the Singapore economy in 2011

$ billion
Private Consumption Expenditure 129
Gross Fixed Capital Foundation 77
Government Consumption Expenditure 34
Exports of goods and services 531
Imports of goods and services 444
GDP 327

a. Economies consist of several key sectors such as households, firms, government and the rest of the world. Explain the relative importance of these key sectors of the circular flow of income in determining national income in Singapore. [10]

Formulating Economic Policies

How is monetary policy determined?

To understand how a policy is formulated, you have to first understand the motivation of the Central Bank. Depending on the country we are referring to, the central bank either is independent of or controlled by the government. Regardless, in general it is safe to assume that the Central Bank wants to achieve its mandate. For the Federal Reserve in the US, it is maximum employment (5.2% to 5.5%), stable prices (2% inflation), and moderate long-term interest rates; for the Bank of England, it is similar, it has the dual mandate of maintaining financial stability and meeting the government’s inflation target, which is at 2%; for the Monetary Authority of Singapore, it aims to promote sustained non-inflationary economic growth, a sound and progressive financial centre using the exchange rate as a main policy instrument. The key economic principle here is that agents respond to incentives, and agents are rational. The Central Bank’s staff is incentivised to achieve the bank’s objectives and will find ways to do so actively.