2012 VJC Prelim Answer

VICTORIA JUNIOR COLLEGE
2012 JC2 PRELIMINARY EXAM
H1 ECONOMICS (REVISED) PAPER NO. 8819/01
13 September 2012 2:00 5:00 pm
READ THESE INSTRUCTIONS FIRST
Write your name and class on all the work you hand in.
Write in dark blue or black pen.
You may use a soft pencil for diagrams.
Do not use staples, paper clips, glue or correction fluid on the work that you hand in.
Section A
Answer all questions.
Section B
Answer one question.
The number of marks is given in [ ] at the end of each question or part question.
At the end of the examination, fasten your work securely, by question, using the strings
provided.
_________________________________________________________________
This document consists of 9 printed pages.
Visit bit.ly/JCpapers for more cheap and latest JC prelim papers

Section A
Answer all questions in this section.
Question 1
Sustainable Energy Development
Table 1: World price of crude oil 2002 - 2010

Year Price in US$*
2002 31.4
2003 36.7
2004 47.5
2005 62.7
2006 71.0
2007 75.5
2008 101.9
2009 62.4
2010 79.4
* figures are based on the average over 4 quarters, in real 2010 prices
Source : US Energy Information Administration, accessed 25 May 2012
Extract 1 : Cheap natural gas making inroads as US fuel
Americas natural gas boom continues to amaze. Between 2005 and 2010 the countrys
shale-gas industry, which produces natural gas from shale rock by bombarding it with water
and chemicalsa technique known as fracking grew by 45% a year. As a proportion of
Americas overall gas production, shale gas has increased from 4% in 2005 to 24% today.
Natural gas emits less carbon dioxide than oil-based gasoline (this is the American term for
petrol, which is distilled from crude oil). Thus, it can be considered a "green" fuel. The use
of natural gas instead of gasoline to drive the country's cars and trucks "is definitely starting
to take off," said Mark Hanson, an analyst at investment research firm Morningstar.
Compressed natural gas (CNG), a form of natural gas used to power vehicles, is believed to
offer a lot of potential. The technology is promising," said a General Motors spokesman.
"Fracking" has drawn fire from environmentalists as the method threatens the air we
breathe, the water we drink, and the climate on which we depend and thus the federal
government and regulators in various states are considering tighter regulations on it. CNG
is pressurized gas stored in a similar way to a vehicle's gasoline tank but it has several
drawbacks at the moment. CNG vehicles can only operate at relatively short distances from
a refuelling hub. Large businesses with substantial scale of production can potentially justify
the cost of investing in their own specialized refuelling stations. But for individual consumers,
the refuelling infrastructure is limited - currently there are only about 400 CNG stations in the
US. Moreover, CNG is still expensive relative to gasoline and requires a greater amount of
space for storage than conventional gasoline powered vehicles.
Source : Adapted from news.discovery.com, 28 Mar 2012 and Economist, 2 Jun 2012

Table 2:
Total carbon emissions (Million Metric Tons):

2005 2006 2007 2008 2009
United States 5991.5 5913.7 6018.1 5833.1 5424.5
Singapore 133.9 140.1 146.9 156.4 156.4
Per capita carbon emissions (Million Metric Tons):

2005 2006 2007 2008 2009
United States 20.3 19.8 20.0 19.2 17.7
Singapore 30.2 31.2 32.3 34.0 33.6
Source : US Energy Information Administration, accessed 25 May 2012
Extract 2: Is Singapore part of the problem, or can it be part of the solution?
That human activity is changing the Earth's climate is now accepted by all but a small
minority of climate change deniers. There is now in-principle agreement among governments
in most large developed countries that they must reduce greenhouse gas emissions, the
most significant of which are emissions of carbon dioxide. Carbon emissions are not only
harmful to the environment, but also to human health as warmer temperatures would bring
diseases, and probably lead to fast-melting ice sheets, rising sea levels, drought and crop
destruction.
In the 'National Climate Change Strategy' (NCCS) released in 2008, Singapore calls for
responsible action to tackle the threat of climate change, including efforts at mitigation. One
underlying aim of its mitigation strategy is to tweak the price-based incentives of firms and
households to be more energy efficient. Other government policies aim to promote new
sources of GDP growth by developing 'clean energy' industries. There were already several
initiatives in place to protect the environment it had long controlled its vehicle population
growth, for example. One measure that will kick in next year is an emissions-based vehicle
scheme that rewards drivers of fuel-efficient cars. The government is also studying the
possibility of a carbon tax. Residents are also encouraged to use energy-efficient devices
and public transport and turn off lights not in use. Among its various environmental
accomplishments, Singapore has achieved its carbon intensity target. The carbon intensity
of the economy refers to carbon dioxide emissions per dollar of GDP, and Singapore has
reduced these by 25% from the 1990 level even before its target date of 2012. However,
over the same period, actual emissions have increased.
Given its 'special circumstances' - its small size, urban landscape and industrialized
economy - Singapore cannot cut its emissions significantly, if at all. Its size makes it hard to
harness solar and wind energy effectively; its emissions are in fact encouraged by the
pursuit of an economic growth model that has been accompanied by increasing carbon
emissions the growth of Changi airport, oil refining and related petrochemicals
development are industries long encouraged by government policy. Moreover, its emissions
are only a small fraction, 0.2%, of the global total. One could say that since its contribution
is so small, it doesn't matter what it does. But some have argued that its emissions matter
because its wealth and success have made it an attractive growth model for many countries
in the region and if they follow its model of raising their per capita income, the world will have
no chance of averting disastrous climate change.
Source : Adapted from http://www.videtteonline.com, 5/12/2011

Extract 3: US commerce department brings heavy tariffs against Chinese solar panels
The Obama administration which champions the clean energy industry yesterday imposed
tariffs of as much as 250 percent on Chinese-made solar panels to aid domestic
manufacturers beset by foreign competition. Critics said the decision may end up raising
prices and hurting the US renewable energy industry.
The US Commerce Department ruled that Chinese manufacturers sold solar panels in the
US at prices below the cost of production. A few of those companies have acknowledged
receiving cheap loans and other government support. The decision will benefit the US solar
panel makers who were struggling against Chinese competition and weakening demand in
Europe. Chinese imports drive down the price of solar panels by 80% over the last five
years, and by 40% in the last year alone. The price drops drove some US solar panel
makers such as Solyndra to collapse. Another maker, Evergreen Solar, embarrassed
the administration by announcing plans to move production from Massachusetts to China
because of lower costs, after laying off 800 workers.
Todays decision is expected to have an impact on the US marketplace for Chinese

manufacturers since it will begin to remove the advantage they have had as a result of their
illegal trade practices, the Coalition for American Solar Panel Manufacturing said in a
statement. Hong Lei, a Foreign Ministry spokesman, told reporters today in Beijing that
Chinese companies have a price advantage because they have reduced costs through
technological research. China criticized the action, saying the US is hurting itself and
cooperation between the worlds two largest economies. The tariffs will probably drive up
prices for solar projects in the US, according to Shyam Mehta, an analyst with GTM
Research in Boston, and may prompt Chinese companies to shift production to other
countries to evade them. Jigar Shah, president of the Coalition for Affordable Solar Energy,
said the tariffs wont benefit the rest of the US solar industry, including developers that buy
solar panels and companies that sell the gear used to produce them. They will increase
solar electricity prices in the US precisely at the moment solar power is becoming a
competitive alternative energy for fossil fuel generated electricity, Shah said in a statement.
This new artificial tax will mean higher prices for consumers and will set back the adoption
of solar power, undermining the success of the US solar industry. He also warned that
China might retaliate against American manufacturers, sparking a trade war.
The US solar industry grew by 109 percent from 2010 to 2011. It has made $56bn in clean
energy investment in 2011, overtaking China, which invested $47.4bn. The growth of the
US clean energy industry was led by the plummeting costs of Chinese-made solar panels.
Protecting US panel makers may not be the best way to promote renewable energy in the
US, according to Tom Gutierrez, chief executive officer of GT Advanced Technologies Inc.
(GTAT), a Merrimack, New Hampshire-based supplier of solar manufacturing gear. The
war we are fighting is a technology way, Gutierrez said in an interview. If we get stuck
protecting low level assembly jobs, we lose on the future.
President Barack Obama is trying to create a market for solar in the US, so its curious why
he wants to impose tariffs, which will make it more expensive, said Dan Ikenson, director of
the Washington-based Cato Institutes Herbert A. Stiefel Center for Trade Policy Studies. It
will imperil jobs in the much more economically significant downstream.
Source : Bloomberg, May 18, 2012

Questions:
(a) (i) Summarise the trend in world price of crude oil between 2002 and 2010 [2]
as shown in Table 1.
(ii) With reference to Extract 1 and using demand and supply analysis, [4]
explain whether the availability of natural gas in the US will affect the
price of gasoline.
(b) (i) Compare the trends for total carbon emissions by Singapore and the US [2]
from 2005 2009.
(ii) Explain how carbon emissions can lead to market failure. [4]
(c) To what extent should Singapore contribute towards the reduction of [8]
world carbon emissions?
(d) Given that the US government champions the clean energy industry, [10]
discuss its justifications for imposing heavy tariffs on solar panels from
China.
Total: 30m

Question 2
Economic Growth in Indonesia and Singapore
Table 3: Indonesia: selected economic indicators 2006-2010
2006 2007 2008 2009 2010
Real GDP growth (%) 5.5 6.3 6.0 4.6 6.2
Inflation rate (%) 13.1 6.7 9.8 4.8 5.1
Unemployment rate (%) 10.3 9.1 8.4 7.9 7.1
Interest rate (%) 9.75 8.0 9.25 6.5 6.5
Population growth (annual % change) 1.1 1.1 1.1 1.0 1.0
Source: Adapted from the World Bank, July 2012, Bank Indonesia 2012
Table 4: Singapore: selected economic indicators 2006-2010
2006 2007 2008 2009 2010
Real GDP growth (%) 8.8 8.9 1.7 -1.0 14.8
Inflation rate (%) 1.0 2.1 6.6 0.6 2.8
Interest rate (%) 3.44 2.0 0.75 0.44 0.31
Source: Adapted from the World Bank, July 2012, Monetary Authority of Singapore July 2012
Extract 4: Indonesia posts rising GDP growth
Indonesia's GDP grew 6.2 per cent in 2010, officials said as Southeast Asia's biggest
economy confirmed its position among the top ranks of emerging markets. Central Statistics
Agency Chairman, Rusman Heriawan said the resource-rich country of 240 million people
posted 6.9 per cent growth in the fourth quarter of 2010, making it among the best
performers in the Group of 20 rich and developing countries.
Indonesia is on course to reach its target of 6.0-6.5 per cent growth in 2011. The country's
stock market has shed more than five per cent so far in 2011 due to concerns about rising
inflation, persistent infrastructure bottlenecks and endemic corruption.
Heriawan said Indonesia could look forward to stronger growth in 2011, in line with the
broader recovery of the global economy from the 2008-2009 financial crisis. The agency said
exports in the fourth quarter of 2010 increased 16.1 per cent, a sign of the appetite for
Indonesian resources from China and India. Investment climbed 8.7 per cent and
government spending rose 7.3 per cent. Household consumption increased 4.4 per cent, a
key figure given that some 60 per cent of Indonesia's GDP is attributed to domestic demand.
In 2010, President Susilo Bambang Yudhoyono announced a massive overhaul of the

country's deteriorating infrastructure worth $140 billion over 5 years, $90 billion of which has

to come from the private sector. Standard Chartered Bank economist FauziIkhsan said new
and improved ports, roads, bridges and railways were essential to Indonesia's ambitions to
become a regional economic powerhouse. "The economic growth was supported by high
commodities prices which raised the country's export income. Foreign direct investment and
public consumption also helped the growth," he said. "In the near future, the government
should push infrastructure development as this is important to attract private investment."
Source: Adapted from Channelnewsasia.com, 7 Feb 2011
Extract 5: Fear of inflation spiral
In the face of increasing inflation and to quell the fears of an inflation spiral, the central bank
raises the interest rate from 6.5% to 6.75%. Indonesia has previously resisted raising the
interest rate, fearing it would attract capital flows, putting pressure on its currency to rise.
The continuing increase in inflation is driven by the rise in global commodity prices,
accelerating domestic demand, and relatively high inflation expectation, the central bank
said. Bank Indonesia is continuously vigilant to these risks on accelerating inflation
pressures, as well as inflation pressures that may rise if government were to reduce fuel and
electricity subsidies.
Source: Adapted from Bloomberg, 9 June 2011
Extract 6: Singapore economic expansion quickens inflation
Singapores inflation rate rose to 3.8 percent in November from a year earlier, an
acceleration that may put pressure on the central bank to allow further currency appreciation
to curb price increases.
Singapores economic expansion this year has fuelled prices, prompting the central bank to
allow faster currency gains and leading the government to implement measures to cool the
property market. The Monetary Authority of Singapore uses the exchange rate instead of
interest rates to manage inflation, which it forecasts may stay high in the first half of 2011.
Rising food, transport and housing costs, compounded by escalating wage pressures, will
likely keep inflation above 4 percent in early 2011, Mr. Chua, BOA Merrill Lynch economist
said before the report. MAS will have to stay tight, in our view, with the risk for further
tightening in April next year.
The central bank said in October that it will steepen and widen the currencys trading band
while continuing to seek a modest and gradual appreciation, after undertaking a one-time
revaluation in April. The Singapore dollar has gained more than 7 percent against the U.S.
currency this year. Moreover, to maintain a stable and sustainable property market, the
government will also be imposing higher stamp levies for owners of new properties who sold
them within 4 years (previously 3 years) of purchase. This takes effect in January 2011.
Source: Adapted from Bloomberg, 23 December 2010

Extract 7: Singapore lowers 2011 growth forecast as global risks threaten Asia
Singapore reduced the top end of its growth forecast for 2011 as a faltering U.S. economy
and the European debt crisis heightened the risks to global expansion. Singapores GDP will
probably rise 5-6 percent this year, Prime Minister Lee said yesterday. The government
previously predicted growth of as much as 7 percent.
Asia, led by China and India, is expected to continue growing but the global outlook remains
uncertain, Lee said. Europes debt problems are far from solved despite the recent bailout
of Greece by the European Union. The U.S. economy remains sluggish. Asia faces the
threats of weakening demand and rising currencies after Standard & Poors cut U.S. credit
rating and a sell-off in Italian and Spanish debt intensified risks to the world recovery.
Singapore remains vulnerable to fluctuations in overseas orders for manufactured goods
even as the government boosts financial services and tourism, making it the most volatile
Asian economy, according to Credit Suisse Group AG. If the U.S. goes into a recession,
then no doubt Singapore will get hurt significantly, said Kun, Credit Suisse analyst.
However, thats not our current view yet. We still expect U.S. growth to continue but at a
very weak level.
Source: Adapted from Bloomberg, 8 Aug 2011
Questions
(a) (i) With reference to Table 3, describe the trend of Indonesias [1]
unemployment rate for the period 2006 to 2010.
(ii) From the data, what can you conclude about the standard of living of [4]
Indonesians?
(b) (i) State the relationship between Indonesias inflation rate and the interest [1]
rate shown in Table 3.
(ii) Analyse the impact of the increase in interest rate in 2011 by the [6]
Indonesian central bank.
(c) With reference to Extract 4, discuss whether the governments [8]

infrastructural spending can help Indonesia to achieve the
macroeconomic objective of non-inflationary economic growth.
(d) If you were the economic advisor to the Singapore government, would [10]
you recommend that the government continues to allow the exchange
rate to strengthen?
Total: 30m

Section B
Answer one question from this section.
3. A year on since the first of Singapore's two casinos opened its doors, there are
now growing calls to review the entry levy that locals have to fork out if they wish
to gamble there.
The Business Times 21/02/2011
a) Explain why the casino is a private good and how it leads to market failure. [10]
b) Discuss if the imposition of an entry levy is the most appropriate measure [15]
to correct the market failure.
4. Recovering global economies have led to rising oil prices and this has affected
oil importers such as Singapore.
Adapted from Mas.gov.sg/May 2010
a) Explain the impact of rising global oil prices on the Singapore economy. [12]
b) Discuss the extent to which supply side policies can help to manage the [13]
most harmful effects of rising oil prices.
---- End of paper ----

Victoria Junior College
2012 H1 Economics Preliminary Exam
Section A:
CSQ1:
(a) (i) Summarise the trend in world price of crude oil between 2002 and 2010 [2]
as shown in Table 1.
World price of crude oil
has risen steadily from 2002 to a peak in 2008 [1] but fell sharply in 2009 and then resumed
its rise again thereafter [1].
Or
was generally rising [1] with the exception of a sharp fall in 2009.[1]
(ii) With reference to Extract 1 and using demand and supply analysis, [4]
explain whether the availability of natural gas in the US will affect the
price of gasoline.
How it will affect the price of gasoline
The availability of natural gas in the US will cause the supply of natural gas to increase and the
price of natural gas to fall.
As natural gas can be used as an alternative to gasoline, there may be a switch to natural gas
away from gasoline, i.e. demand for gasoline will fall, driving down the price of gasoline.
Effect is insignificant at the moment
However, the supply of gasoline will not increase very significantly as the share of natural gas
in the total gas production is still small (24% of the total) and there are environmental concerns
over its extraction. Hence, the price of natural gas will not fall very much and thus widespread
use of natural gas by individual consumers is not likely yet since it will still be expensive and
there will thus be little fall in demand for gasoline.
Moreover, there is a lack of refuelling infrastructure for CNG vehicles that use natural gas as
these vehicles can only operate short distances from a refuelling hub and the bigger storage
space required by these vehicles also prevent them from catching on in popularity and hence
little fall in demand for gasoline.
The insignificant fall in demand for gasoline, assuming no change in supply of gasoline will
thus lead to an insignificant fall in the price of gasoline.

Effect will be more significant given time
As the technology is promising, the extraction of natural gas may become safer and more
acceptable, increasing its supply and bringing down its price significantly. The storage space
required in vehicles may also be possibly reduced and the demand for CNG vehicles may then
rise. It may then be an alternative energy to gasoline, reducing the dependence on gasoline,
in turn reducing the demand for gasoline more significantly and thus lower the price of gasoline
more significantly, assuming no change in supply of gasoline.
Students are expected to explain, with supporting evidence,
-how and whether it will affect Up to 3 m
-extent of effect, whether insignificant at the moment or more significant given time Up to 2 m
[3 + 2 = 4m, If nothing on extent, capped at 3m]
(b) (i) Compare the trends for total carbon emissions by Singapore and the US [2]
from 2005 2009.
While total carbon emissions by the US have been falling since 2005, with the exception of a
slight rise in 2007, Singapores total carbon emissions have been rising to a peak in 2008 and
stay constant in 2009.[2]
Total emissions by US was higher than Singapores throughout. [1]
(ii) Explain how carbon emissions can lead to market failure. [4]
x carbon dioxide emissions caused by production/consumption of gasoline are negative

externalities or external costs (or harmful effects) imposed on people (or third parties)
who are not directly involved in the production/consumption of gasoline.
x There is thus a divergence between marginal private costs (MPC) and marginal social
costs(MSC).
x Examples of such third party effects include harm to the environment, health costs due to
diseases, drought and crop destruction, caused by pollution/global warming.
Costs/
MSC
Benefits A
Es MPC
Ep
MPB = MSB
0 Quantity of production
Qs Qp
/consumption using gasoline

x When deciding on production or consumption, the free market will
produce/consume up to the point where MPB = MPC, achieving private
efficiency but does not take into account the external costs generated.
x As such, Qp is being produced/consumed. However, the socially efficient level
is at Qs, where MSC = MSB. The market is thus said to fail,
overproducing/consuming QsQp units, which give rise to more costs than
benefits to the society, resulting in welfare loss of area AEs Ep.
x Diagram if used for explanation.
(c) To what extent should Singapore contribute towards the reduction of [8]
world carbon emissions?
Singapore should contribute:
-on a per capita basis, her emissions are very high and rising and she should thus do
something to reduce them.
-her contribution, even small, will help to improve world resource allocation and increase world
allocative efficiency
-and at the same time improve the non-material well being of her residents by improving the
air quality.
-with her wealth, the need to grow rapidly for survival reason has become less justified and she
has the ability and moral obligation to make a contribution by pursuing new sources of growth
that develop clean energy instead of continuing to depend on those which cause increasing
levels of emissions. It may even be a new source of export revenue if she succeeds in
developing her clean energy industry.
-even if she cannot reduce the emissions significantly or at all, she can still contribute in terms
of mitigation efforts, which she is already doing:
-cap her carbon intensity reduce its carbon emission per dollar of GDP
-take steps to be more energy efficient, so as to cut down as much emissions as

possible eg encourage fuel-efficient cars through a carbon tax, use of energy-efficient
devices at homes, control vehicle population and encourage use of public transport.
-she can be a role model for other countries who pursue her growth model if she succeeds at
her mitigation effort.
Singapore should not contribute:
-the benefits of reducing world carbon emissions are negligible as her emissions form only
0.2% of the global total while
-the costs of reducing the emissions are huge since

i)her economic growth will be adversely affected
-being a city state and an industrialised economy that depends on production activity,
emissions will be inevitable. She needs to undertake production such as growing her air hub,
oil refining and petrochemicals development which will give rise to carbon emissions.
-emissions reducing effort will add to costs and reduce export competitiveness, putting her at a
disadvantage compared to competitors who did not make such an effort.
ii)being small, she does not have the space to tap and harness cleaner energy like solar and
wind energy and thus any attempt to reduce carbon emissions will be very costly.
Synthesis:
x To the extent that her economic growth is not too adversely affected, she should make
a contribution, however small, towards mitigating, if not reducing, world carbon
emissions, to improve world allocative efficiency as well as the non-material well being
of her people. She might even gain a new source of export revenue.
x Although she may not be able to reduce significantly her level of carbon emissions, she
can still compensate by promoting efficient use and exploring cleaner energy which she
is already doing.
x Even if she cannot make much of a difference given her low level of total emissions,
her contribution can be a signal to get others to do their parts and together with them,
make a collective difference.
Level Descriptors Marks

L1 Largely cut and paste or smattering of points limited to how carbon 1-2
emissions can or cannot be reduced.
L2 2 sided answer with some reference to data but under-developed 3-5
economic analysis (or vice versa)
Or
1 sided answer with some reference to data and well developed
economic analysis
L3 2 sided answer with adequate analysis /weighing and good use of data to 6-7
support both views.
+E Provide a substantiated and synthesized view +1
[10]
(d) Given that the US government champions the clean energy industry,
discuss its justifications for imposing heavy tariffs on solar panels from
China.
Solar energy is cleaner and cuts down on carbon emissions. The US government champions
the clean energy industry as evident by her higher investment of $56bn in clean energy in
2011, overtaking Chinas $47.4bn. The US solar industry grew by 109 percent from 2010 to

2011. The main reason behind the industrys growth was the availability of low cost Chinese-
made solar panels.
Why the move by the US is justified:

-However, such low cost solar panels have adversely affected the US solar panel makers.
-The US Commerce department ruled that the Chinese solar panel manufacturers have an
unfair advantage over their US counterparts as they have received cheap loans and other
government support and these have helped them to sell their solar panels in the US at prices
below the cost of production.
-They have caused the price of solar panels in the US to fall by 80% over the last five years,
and by 40% in the last year alone. Some US solar panel makers who could not compete with
the low price and incur losses have since closed down. Others have decided to move their
production from the US to China to take advantage of the low costs. As a result, production of
US solar panels fall, which will in turn cause the workers to become unemployed.
-Imposing heavy tariffs of as much as 250 percent on Chinese-made solar panels will raise
their price, removing the price advantage they have had as a result of illegal trade practices, so
that US consumers will switch from Chinese-made solar panels to domestic solar panels,
which thus help the domestic producers to stay in production and the workers to keep their
jobs.
[Not expected to but can be illustrated with diagram showing effects of tariff in reducing imports
and increasing domestic production.]
Why the move by the US is not justified:

-However, the Chinese Foreign Ministry spokesman has maintained that Chinese companies
have a price advantage because they have reduced costs through technological research.
-Critics have also argued that the tariffs, by raising prices of solar panels, will push up the
costs of producing solar energy, raising the price of solar power for consumers, setting back
the adoption of clean energy, thus end up hurting the US clean energy industry. After all, the
rapid growth of the solar industry was mainly attributed to the low costs solar panels from
China. Hence, by removing the availability of such an alternative source of energy which is
just beginning to become competitive, there would be job losses.
-The tariffs will also hurt relations and invite retaliation from China which may counter with
tariffs on US products entering China, hurting the US export industry and causing job losses.
-Chinese solar panel producers may also shift their production to other countries to avoid the
tariffs which may mean that their solar panels will still be able to enter the US market to
compete with the US solar panel makers and hence jobs in the industry will still be lost.

Synthesis/Conclusion:
x The US move in imposing heavy tariffs on solar panels from China is hardly justified on
economics grounds.
x It will be lose-lose for the US and China as both will end up worse off, including the US
solar panel producers whom the US government tries to protect. Their expensive solar
panels may find few buyers and consumers may switch back to conventional energy,
setting her back on her clean energy initiative.
x Instead of a tariff, it might be better for the US to counter the competition by offering the
same low cost loan assistance to their solar panel firms like China. However, that
might not be easy in the aftermath of the financial crisis when banks became risk
averse.
x Or perhaps the US could have explored the possible reason behind her high costs, one
of which is likely to be her high wages and hence the need to raise productivity to bring
down unit cost.
x Or perhaps she should consider developing new areas of comparative advantage in the
downstream solar industry that requires high technology and move out of solar
manufacturing which she apparently has a comparative disadvantage.
x Thus, the US move in imposing heavy tariffs on Chinese solar panels is difficult to
justify and other better solutions should be explored.

L1 x Only able to mention concepts relevant to the question and identify 1-2
some relevant points from the data but not able to explain the
economics of those points (i.e. answer is not developed using
economics).
L2 x Able to explain the economics of the US governments move but one- 3-5
sided answer
OR
Two-sided answer but answer is underdeveloped
x Limited use of data
L3 x Well-developed (using economic analysis) and balanced answer 6-8
x Sufficient breadth, covering impact on different parties consumers,
domestic and foreign producers of the protected industry as well as
related industries.
x Sufficient reference to the data that is available
+E1 x Provides a stand that responds to the question but did not +1
substantiate or synthesize views.
+E2 x Provides a justified stand. i.e. Makes a clear stand and provides a +2
critical assessment of the views based on the synthesis of the
theoretical and evidential arguments.

CSQ2:
(a) (i) With reference to Table 3, describe the trend of Indonesias [1]
unemployment rate for the period 2006 to 2010.
Indonesias unemployment rate fell throughout. (1m)
(ii) From the data, what can you conclude about the standard of living of [4]
Indonesians?
Living standard refers to the material and non-material well-being of Indonesians. Data
only shows the material living standard, i.e. the amount of goods and services available
for consumption. Non-material living standard refers to the quality of life, i.e. working
hours / conditions, stress, external costs, etc.
As Indonesias real GDP grew at a faster rate than population growth for the period 2006
to 2010, real GDP per capita has risen over the years. (1m) Also unemployment rate has
been falling, so more Indonesians would have jobs and the ability to purchase goods and
services. (1m) Thus, the material living standard of Indonesians would have improved.
(1m)
There is lack of data to comment on the non-material standard of living, though we can
infer that the rising economic growth may lead to longer working hours and stress. (1m).
(b) (i) State the relationship between Indonesias inflation rate and the interest [1]
rate shown in Table 3.
There was a direct relationship between Indonesias inflation rate and interest rate (1m).
OR Interest rate was raised (2006, 2008) when inflation rate was high and interest rate
declined when inflation rate fell. (1m)
(ii) Analyse the impact of the increase in interest rate in 2011 by the [6]
Indonesian central bank.
Indonesian central bank increased the interest rate from 6.5% to 6.75% in 2011 in the
face of inflationary pressures brought about by a booming economy due to higher global
commodity prices, accelerating domestic demand and relative high inflation expectation.
(1m)
A higher interest rate will increase the returns to savings but raises the opportunity costs
of consumption and investment. This causes households to save more and consume
less and firms to reduce investment, so with falling C and I, AD will fall. The fall in AD,
also induces less spending in other sectors, resulting in a multiple fall in real output and
thus easing the inflationary pressures. (2m)
Impact is likely to be significant since domestic demand accounts for a large proportion
of Indonesian GDP, however it can also be counter-argued that in a booming economy

with high consumer confidence and positive business prospects, C and I may not fall
significantly. Also the increase in interest rate is only 0.25%. (2m)
However, the higher interest rate may attract capital inflows as investors take advantage
of the higher returns in investing in Indonesian assets and higher confidence in the
central banks attempt to control inflation. (2m) With the capital inflows, investors will
need to exchange foreign currencies for the Rupiah, exerting upward pressure on the
exchange rate. The appreciating exchange rate may cause the exports to be price
uncompetitive, reducing net exports and leading to a negative impact on GDP growth,
though demand-pull inflationary pressures will be eased. (2m)
Impact on FDI if investors perceived that the rise in interest rate is able to control
inflation, the lower costs of production will attract FDI.
Explanation of direct impact of domestic interest rate on domestic demand and economy
(2m)
Explanation of impact on other aspects (capital inflows, ER and feedback effect on
domestic economy) 2m
Significance of impact 2m
(c) With reference to Extract 4, discuss whether the governments [8]

infrastructural spending can help Indonesia to achieve the
macroeconomic objective of non-inflationary economic growth.
To achieve non-inflationary economic growth, there must be both an increase in actual

growth and potential growth.
Thesis
The Indonesia government intends to have a massive overhaul of the country's
deteriorating infrastructure totalling $140 billion over 5 years. New and improved ports,
roads, bridges and railways were essential to Indonesia's ambitions to become a
regional economic powerhouse.
With investment in infrastructure, there will be a rise in aggregate demand for goods and
services (raw materials, relevant goods to build the ports, roads, bridges and railways).
As the government pays the contractors, engineers, workers involved in the construction,
the government spending will boost the construction sector, raising the demand for
labour, boosting output and employment. The rise in income will spur further domestic
consumption and spillover into the domestic consumer industries, hence boosting real
GDP.
In the longer term, when the infrastructure is completed, there will be increase in
efficiency (reduce persistent infrastructural bottlenecks) and productivity, thus boosting
productive growth.

With the rise in actual and potential growth, the Indonesian government will be able to
achieve a sustainable economic growth. Also, FDI may be attracted by the improved
infrastructure, further boosting I and growth.
Anti-thesis
The government has to spend $50 billion in building the infrastructure, so there will be a
strain on the governments budget and the government may have to cut down on fuel
and electricity subsidies. It may have to finance the expenditure through borrowings,
raising its public debt which may have to be paid back through higher taxes in the future.
The higher borrowings may lead to crowding out effect, as demand for loans drive up
interest rate. The higher interest rate increases returns to savings but deter domestic C
and I due to the higher borrowing costs. The fall in C and I may offset the rise in G and
hence economic growth.
Given the inflationary pressures currently faced by Indonesia, the further rise in I may
worsen the inflation in the short run due to structural bottlenecks. As investment is
spread over 5 years, the rise in productive capacity may not be fast enough to meet the
rise in AD.
Synthesis / Evaluation
The rise in government infrastructural spending can help Indonesia to expand its
productive capacity to achieve non-inflationary economic growth, and the improved
infrastructure will boost efficiency and reduce the persistent infrastructural bottlenecks.
With a booming economic growth and rising tax revenue, the government seems to have
the funds for the infrastructural development. However, in order to have a sustained
economic growth, actual growth is also needed and this is also dependent on the growth
in domestic and external demand.

L1 An answer that shows how the government spending work but the 1-2
explanation is not clear (or not sufficiently developed). No reference to
data.
L2 Adequate one-sided explanation of how the planned government 3-5
spending can help to achieve a non-inflationary economic growth with
some use of data
Or
Provided both sides as to why it may help or not help to achieve a non-
inflationary economic growth, but explanation is not sufficient and some
use of data.
L3 A balanced answer with good analysis and good usage of data. 6-7
+E Well supported stand +1

(d) If you were the economic advisor to the Singapore government, would [10]
you recommend that the government continues to allow the exchange
rate to strengthen?
Inflation rate has risen from 0.6% in 2009 to 2.8% in 2010. It is expected to rise to about
3% in 2011. Singapores economic expansion (14.8% in 2010) has resulted in demand-
pull inflation as there is lack of spare capacity given that the economy is already in full
employment (Table 4, unemployment rate of 2.2%).
The tight labour market has also resulted in escalating wage pressures. This together
with rising transport costs has resulted in cost-push inflation (likely keep inflation above
4 percent in early 2011).
Thesis: Continue to allow the exchange rate to appreciate

By strengthening the S$, exports will become less price competitive, reducing foreigners
demand for Singapore exports. Imports will become relatively cheaper in S$ and locals
will switch to buying imported goods. Assuming demand for imports is price elastic, there
will be a more than proportionate rise in import expenditure. A fall in export revenue and
a rise in import expenditure will reduce net exports, aggregate demand and ease the
inflationary pressure. With the fall in net exports, wage pressure will also be reduced,
helping to keep prices down.
Cheaper imports will also help to reduce imported inflation as the stronger S$ means that
food prices will be cheaper and transport costs will fall. This is particularly important to
Singapore due to our lack of natural resources and our heavy import dependency. Food
and transport costs were also cited in the case as the reasons for the inflationary
pressure.
Moreover, the imported inputs will also be cheaper and this will lower the costs of
production and thus prices of domestic goods and services.
Singapore economy is still expected to grow at a reasonable 5-6%. Moreover, the Asian
currencies are also strengthening, so the impact on export competitiveness of a strong
S$ is less adverse.
Anti-thesis: Not to continue to let S$ strengthen

There are signs that Singapores GDP growth in 2011 is slowing down (cut in growth
forecast from 7% to 5-6% for 2011) as a faltering U.S. economy and the European debt
crisis heightened the risks to global expansion. Asia, led by China and India, is expected
to continue growing but the global outlook remains uncertain.
As Singapore is heavily reliant on trade and its major trading partners (US, Europe and
Asian countries, including China and India) are expected to face slowdown in their
economy, export expansion is expected to be reduced. To strengthen the S$ further will
result in a loss of our export competitiveness and further decline in the demand for our
exports. MAS has already allowed the S$ to strengthen significantly from 2009 to 2010
(Table 4, Extract 6 paragraph 3) and given that demand for our high value exports are
income elastic (slowdown in global economy/fall in GDP will lead to a more than
proportionate fall in demand for our exports), coupled with loss in export competitiveness

(foreigners may switch to cheaper substitutes) will significantly affect our export revenue,
leading to a further slowdown in our growth.
The use of S$ may not be effective in tackling inflation caused by rising housing costs.
The more effective measure would be specific policy targeted at properties, which the
government are already implementing (Extract 2, last paragraph), which will reduce
speculative demand and housing prices.
Synthesis / Evaluation
Singapores small domestic economy and openness to trade mean that the exchange
rate is very effective in ensuring economic growth with price stability. When the economy
rebounded with strong growth of 14.8% in 2010 and full employment of 2.2%, the upward
price / wages pressures together with imported inflation, provided strong justification for
MAS to appreciate the S$ to counter the accelerating inflationary pressures as it
addresses the root cause.
However, given that the global economy is slowing down and external demand is
expected to be affected, MAS should not continue the appreciation of the currency as it
may lead to an economic downturn if the stronger S$ makes our exports uncompetitive in
the midst of a slowing global demand.

L1 An answer that shows how the government spending work but the 1-2
explanation is not clear (or not sufficiently developed). No reference to
data.
L2 Adequate one-sided explanation of why the Singapore government 3-5
should allow the currency to continue to strengthen, with some use of
data
Or
Provided both sides in analysing why the government should or should
not allow the currency to strengthen, but not adequately explained and
supported by data.
L3 A balanced answer with good analysis and good usage of data. 6-7
+ E1 Attempts to make judgement but assertions are not supported. +1
+ E2 Judgements are well explained and supported by analysis. +2

Section B: Essays
3. A year on since the first of Singapore's two casinos opened its doors, there are
now growing calls to review the entry levy that locals have to fork out if they wish
to gamble there.
The Business Times 21/02/2011
a) Explain why the casino is a private good and how it leads to market failure. [10]
b) Discuss if the imposition of an entry levy is the most appropriate measure [15]
to correct the market failure.
a)
Whether a good is a private or public good will depend on whether it is excludable / non-
excludable and rivalrous /non-rivalrous.
Excludable
A private good is one that is excludable in nature. For such goods, it is possible to exclude a
person who did not pay from accessing the good and enjoying the benefits. Only a person who
has paid can enjoy the good. Thus, for the casino, as it is possible for the owners to physically
exclude people from entering its premises if they were to charge an entrance fee, it is
considered as a good that is excludable.
(This is totally different for a public good which is non-excludable in nature whereby it is
impossible or economically impractical to exclude anyone who has not paid, from enjoying the
benefits once it is produced. No rational consumers would be willing to be pay for these goods
and the problem of free riders will arise. For example, once a defence force is set up, those
who do not pay taxes which provide funds for the setting up of the defence force also enjoy the
security provided.)
Rivalrous
Private goods are considered rivalrous in nature because if one unit of the good is consumed,
there is less leftover for the next customer and more resources need to be utilised to produce
additional units. The casino is considered rivalrous as an additional person in the casino
gambling either at the tables or slot machines will mean that there is less space for someone
else to gamble. Given that a casino is a good that is both excludable and rivalrous, it can thus
be classified as a private good.
(On the other hand, a public good is non-rivalrous because the consumption or use of the good
by one person does not diminish the benefit available to the next person consuming the good.
The consumption of the good by an additional person does not require extra production costs.)

How does it lead to market failure
A casino causes market failure as it can be viewed as a demerit good with significant negative
externalities as well as consumer ignorance and thus the consumption of it leads to an
inefficient allocation of resources.
Negative externalities
Gambling at the casino causes various social issues for both the families as well as the
broader society (addiction leading to heavy losses, causing stress on families as gamblers go
into debt, higher crime rates etc..) generating external costs on third parties. If left to market
forces, the casino tends to be over-consumed at OQ units instead of the socially optimal level
at OQ* units.
Consumer ignorance
People visiting the casinos probably gamble more than what is usually socially (even private)
optimal due to ignorance and irrationality. They usually do not recognise or understand the true
consequence of their actions. Many do not fully comprehend the true odds of gambling or
mistakenly think that it is possible to beat the casino in the long run. Furthermore, when they
spend long hours in the casino, these people get addicted and irrationally gamble OQ units which
are more than the true beneficial amount of OQ* units.
Error! Objects cannot be created from editing field codes.

L1 Some knowledge of the characteristics of private and public goods 1-4
and generic causes of market failure with limited reference to the
context.
L2 Undeveloped explanation about whether the casino is a public or 5-6
private good and incomplete analysis on why the casino is a form
of market failure.
L3 Thoroughly justifies why a casino is considered a private good and 7-10

a well-developed analysis of how externalities and ignorance cause
the market to fail to allocate resources efficiently for casinos.
b)
The current $100 entry levy can help to reduce the amount of gambling at the casino by
increasing the cost of entering the casino for the consumer so that it reflects both the social
and true private costs. With the levy, the marginal private cost will shift nearer to the social
marginal cost. Given the new costs to the consumers, they will find it less beneficial to gamble
as much as before and reduce the time spent at the casino, moving the quantity consumed
from OQ to OQ*.
However, the amount of entry levy might not be accurately calculated by the government and
this might lead to a less than optimal or even a worse outcome. If the levy is too little, gamblers
might still be willing to go to the casinos (demand for gambling has proven to be more price
inelastic than expected and thus the need to increase the levy from the current level) and if the
levy is too much, business of the casino might be adversely affected and cause problems by
causing it to close down and resulting in loss of jobs and income for the economy. Even if the
amount is correct, changing conditions might render the levy ineffective. For example, given
the robust economic growth in Singapore, consumers might view the $100 levy as affordable
and increase their visits to the casino.
Furthermore given the irrational mentality of Singaporeans, when they have to pay a levy,
some consumers will want to maximise the usage so it actually encourages some to gamble
even more than socially optimal and lead to greater inefficiencies.
There might also be monitoring costs involve in ensuring that only the people who pay the levy
are allowed entry and this might lead to a wastage of resources.

Other possible policies to correct the market failure
Public education
Governments could also have advertisements, campaigns and other programmes such as the
gambling addiction management through education (G.A.M.E) to educate consumers about
the true costs of gambling and the negative effects it has on third parties like their families.
This would allow gamblers to more accurately understand their true costs and benefits,
bringing perceived benefits closer to the true benefits and help them make a more informed
choice to reduce the hours that they spend gambling or stop doing it completely.
However, such methods usually require a long time to achieve its desired effects as it would
take time for people to fully understand the information provided. Furthermore, it may also be
difficult to change or influence peoples mindsets effectively as gamblers might feel that the
government is needlessly interfering with their lives.
Legal regulations
Governments can use legal regulations to directly influence the behavior of the gamblers. They
can allow family members to exclude individuals who may not fully understand the true costs
and benefits or just ban all locals from entering the casino. Individuals can also voluntarily opt
to exclude themselves from entering the casino. As regulations are usually backed by severe
penalties such as fines and jail time, they tend to be very effective in changing the actions of
the gamblers.
Other than controlling the consumers, the government can also implement regulations for the
casino operators so that people will be less tempted to gamble. For example, the casino act in
Singapore regulates the amount and type of advertising that the casino can adopt as well as
restrictions such as prohibiting services such as the provision of free transport from certain
heartland areas to the casino. Given the strong legal system in Singapore, such legal
regulations would likely be effective in helping to correct the market failure.
The disadvantage of having voluntary exclusion will be that the parties involved may not have the
required information to make a rational decision and as such, they might not opt to exclude
themselves from the casino. But if a ban for all locals was implemented, it would be considered a
blunt tool as there are inevitably benefits for gamblers as well if they do not overdo it. If the parties
involved better understand the consequences of gambling and are able to control their time spent
in the casino, allowing them in the casino might increase the net benefits for the economy.
Furthermore, banning all locals might adversely the business of the casino and lead to job losses
in the country.
Conclusion
Although the entry levy imposed should have an effect in reducing the number of gamblers at
the casino, the more than expected number of people still visiting the casino means that it

might not have been a large enough amount in the first place. Furthermore, with the strong
economic growth, the value of the initial levy seems to have fallen and thus it might have to
be raised to correctly reflect the true costs of gambling. Nonetheless, since the free market is
still allowed to operate even with levy, it is considered the most appropriate amongst all
policies as it would lead to the least distortions.
As the irrationality exhibited by gamblers will mean that imposing a levy might not be enough
for certain groups to change their behavior, there is a need to use other policies to complement
it so as to ensure that resource allocation is more efficient. A conscious effort must also be
made to ensure that the government intervention does not adversely affect the market
mechanism too much and end up causing a greater welfare loss instead.

L1 Some knowledge of how the various policies might help to correct 1-5
the market failure.
L2 Incomplete explanation of the workings of the entry levy and its 6-8
limitations as well as alternative policies with some reference to context.
L3 Well-developed analysis of the effectiveness of the entry levy and other 9-11
appropriate policies suitable for achieving a more efficient allocation of
resources in the casino market in Singapore.
+ E1 Unexplained judgement or one not supported by economic analysis. +1-2
+ E2 Justify the appropriateness of the policies considering the Singapore +3-4
context.
4. Recovering global economies have led to rising oil prices and this has affected
oil importers such as Singapore.
Adapted from Mas.gov.sg/May 2010
a) Explain the impact of rising global oil prices on the Singapore economy. [12]
b) Discuss the extent to which supply side policies can help to manage the [13]
most harmful effects of rising oil prices.
a)
Briefly refer to the quote. Explain why global oil prices have been rising in recent years.
Interpret the meaning of impact on Singapore economy internal and external macro goals.
Body:
Explain crude oil as an essential resource for many industries and products, e.g.
transportation, utilities, petrochemicals and plastic products.
A persistent rise in global oil prices will eventually seep into the economy through higher
imported energy costs, transport and utility costs, leading to cost-push inflation (imported

inflation). Being small and open, as well as oil reliant, Singapore is more vulnerable to a rise in
oil prices. Therefore since demand for oil imports is price inelastic, import expenditure will rise.
This might lead to rising cost of living as oil related products will see a price increase as well.
Over time, as cost of production rises, AS falls leading to the general price level rising and
hence our export prices will rise relative to our import prices. Given the rise in export prices,
quantity demanded for exports will fall. Assuming the demand for exports is price elastic; this
will lead to a significant fall in the net export revenue (X-M). Hence as Singapore faced
reduced export competitiveness due to rising oil prices, actual growth will be affected, resulting
in a rise in demand deficient unemployment. (Shift of AS causing a movement along AD
curve.)
Given that export revenue falls and import expenditure rises, Singapores trade balance will
worsen. Furthermore, a rise in overall inflation rate may deter FDI causing a worsening of the
capital account.
In all, a rise in global oil prices has a significant impact t on both the internal and external
economy unless MAS intervene in the exchange rate policy to prop up the exchange rate
during time s like this so that the impact on rising cost will not cause a huge deterioration to
our economy. However, it should be noted that the oil rig industry in Singapore may benefit
from a rise in oil prices which could partly offset the negative impact on the economy.

L1 Identifies the cause-effects correctly but with little or no economic 1-4
reasoning or application of economic theories / models.
L2 Undeveloped explanation on the effects on the macro goals or mere 5-8
explanation on either internal or external economy.
L3 An in-depth explanation of how higher global oil prices eventually 9-12
worsens Singapore's balance of payments positions with the use of
demand elasticity concepts and on the other internal macro goals with
good use of AD-AS framework.
b)
Intro: Briefly explain some of the most harmful effects of rising oil prices on the economy (BOT,
cost push inflation etc). Justify based on our dependence on trade and imported inputs.
Body: Explain how supply side policies can help in reducing the impact of the above
problems.
1) Supply side policy can come in the form of government subsidizing oil importers on
condition that they will not pass on higher energy costs to consumers and the rest of
the economy. Have to link back to how lowering of cost will help to alleviate the impact
of cost push inflation and that on the BOT.
This will benefit oil consumers probably only in the short term. Furthermore, this measure is
unlikely to be undertaken by Singapore government at this point in time as funds will be

needed for the subsidy and over the long-term, the appropriateness and sustainability of
continuing to use taxpayers' money to compensate a few oil-importing firms becomes
questionable.
2) Government could also provide more rebates and tax free incentives especially to
energy intensive industries to encourage them to start taking steps to be greener in
their production process, therefore reducing their reliance on oil.
However, rebates and tax free incentive do not necessarily mean that there will be
major changes to their production methods as some firms may find it hard and
costly to switch to greener technology.
3) Government can invest in more research and development into alternative energy in
order to reduce dependence on crude oil as the only energy source and diversify into
alternative forms of energy, e.g. liquefied natural gas (LNG). The availability of
substitutes will raise the PED for oil and reduce imported inflation due to rising oil
prices.
4) The government can also collaborate with industries to improve energy efficiency and
to reduce cost of production in other areas.
However it is easier said than done. These are very long-term measures. Despite the
painful lessons from the global oil crises of the 1970s, Singapore and many other
countries are still heavily dependent on crude oil. For a number of reasons, such as no
ideal location to locate nuclear plant, geographical and climate constraints, it may not
be viable or cost-effective to generate nuclear, solar and thermal energy in Singapore.
5) Our government could directly intervene in the markets to increase the aggregate
supply in the long run. Measures such as increases in productivity thorough
technological advances or the development of human capital through retraining etc will
increase the productive capacity of our country. This would lead to lower inflation in the
long run as capacity is increased and pricing pressures are eased.
Since measures are to increase productive capacity but results are not guaranteed as
there may be uncertainties in the outcome of technology and it takes a long time to
develop human capital. Given that the rising oil price is a pressing problem, effects of
such measures may kick in too late.
Conclusion:
In times of rising oil prices, it is possible that the supply side policies implemented by the
Singapore government can help to mitigate the most harmful effects to a certain degree but it
may not solve the root problem. Moreover, most of these measures take a long time to see the
effects .The problem is thus better solved by exchange rate policy as it targets the root source
of rising cost of production. In the meantime, the Singapore government could use targeted

measure such as giving out transport and utility vouchers to help the lower income households
cope with the rise in oil-related costs.

L1 An answer that shows some knowledge of supply side policies, e.g. 1-4
unexplained statements with little or reference to economic theories,
concepts or principles.
L2 For an undeveloped explanation of how supply side policies could cushion 5-6
Singapore from the effects of rising global oil prices. Only some hint of
criticism of these measures is offered.
L3 Able to correctly apply economic reasoning and theories to explain fully 7-9
how supply side policies can alleviate the most adverse effects of rising
global oil prices on Singapore with evaluation pertaining to context.
+E1 For an unexplained judgement, or one that is not supported by economic +1-2
analysis.
+E2 For an explained judgement with evaluation made reference to +3-4
Singapores context.

2012 VJC Prelim Answer

Hochgeladen von

Dokumentinformationen

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

2012 VJC Prelim Answer

Hochgeladen von

Copyright:

Verfügbare Formate

VICTORIA JUNIOR COLLEGE

2012 JC2 PRELIMINARY EXAM

H1 ECONOMICS (REVISED) PAPER NO. 8819/01

13 September 2012 2:00 5:00 pm

READ THESE INSTRUCTIONS FIRST

Answer all questions.

Answer one question.

This document consists of 9 printed pages.

Visit bit.ly/JCpapers for more cheap and latest JC prelim papers

Answer all questions in this section.

Table 1: World price of crude oil 2002 - 2010

Source : US Energy Information Administration, accessed 25 May 2012

Extract 1 : Cheap natural gas making inroads as US fuel

Visit bit.ly/JCpapers for more cheap and latest JC prelim papers

Total carbon emissions (Million Metric Tons):

Per capita carbon emissions (Million Metric Tons):

Source : US Energy Information Administration, accessed 25 May 2012

Extract 2: Is Singapore part of the problem, or can it be part of the solution?

Source : Adapted from http://www.videtteonline.com, 5/12/2011

Visit bit.ly/JCpapers for more cheap and latest JC prelim papers

Todays decision is expected to have an impact on the US marketplace for Chinese

Source : Bloomberg, May 18, 2012

Visit bit.ly/JCpapers for more cheap and latest JC prelim papers

Visit bit.ly/JCpapers for more cheap and latest JC prelim papers

Economic Growth in Indonesia and Singapore

Table 3: Indonesia: selected economic indicators 2006-2010

2006 2007 2008 2009 2010

Real GDP growth (%) 5.5 6.3 6.0 4.6 6.2

Inflation rate (%) 13.1 6.7 9.8 4.8 5.1

Unemployment rate (%) 10.3 9.1 8.4 7.9 7.1

Interest rate (%) 9.75 8.0 9.25 6.5 6.5

Population growth (annual % change) 1.1 1.1 1.1 1.0 1.0

Table 4: Singapore: selected economic indicators 2006-2010

2006 2007 2008 2009 2010

Real GDP growth (%) 8.8 8.9 1.7 -1.0 14.8

Inflation rate (%) 1.0 2.1 6.6 0.6 2.8

Interest rate (%) 3.44 2.0 0.75 0.44 0.31

Extract 4: Indonesia posts rising GDP growth

In 2010, President Susilo Bambang Yudhoyono announced a massive overhaul of the

Visit bit.ly/JCpapers for more cheap and latest JC prelim papers

Source: Adapted from Channelnewsasia.com, 7 Feb 2011

Extract 5: Fear of inflation spiral

Source: Adapted from Bloomberg, 9 June 2011

Extract 6: Singapore economic expansion quickens inflation

Source: Adapted from Bloomberg, 23 December 2010

Visit bit.ly/JCpapers for more cheap and latest JC prelim papers

Source: Adapted from Bloomberg, 8 Aug 2011

(c) With reference to Extract 4, discuss whether the governments [8]

Visit bit.ly/JCpapers for more cheap and latest JC prelim papers

---- End of paper ----

Visit bit.ly/JCpapers for more cheap and latest JC prelim papers

2012 H1 Economics Preliminary Exam

World price of crude oil

How it will affect the price of gasoline

Effect is insignificant at the moment

Visit bit.ly/JCpapers for more cheap and latest JC prelim papers

Students are expected to explain, with supporting evidence,

-how and whether it will affect Up to 3 m

[3 + 2 = 4m, If nothing on extent, capped at 3m]

Total emissions by US was higher than Singapores throughout. [1]

x carbon dioxide emissions caused by production/consumption of gasoline are negative

Visit bit.ly/JCpapers for more cheap and latest JC prelim papers

Singapore should contribute:

-take steps to be more energy efficient, so as to cut down as much emissions as