2023 H2 Economics Term Assessment Revision Package Set 1

Suggested Answers for Section A

Question 1 (Case Study)

(a) With reference to Table 1, identify one 2019 macroeconomic indicator that [2]
might have been of concern to the Singapore government. Justify your
answer.

Question Analysis:
• “macroeconomic indicators” refers to indicators that measure economic growth, inflation
and unemployment.
• “of concern to the SG government”:
o Government macroeconomic aims are (1) sustainable & inclusive EG, (2) low
unemployment, (3) stable inflation and (4) healthy balance of payment [H2 only]
o Government would be of concerned if the macroeconomic aims are not achieved
as there are harmful consequence to not achieving the aims

GDP at constant 2010 US$ (% change)

Identify the indicator SG government might be concerned about the GDP at
constant 2010 US$ (% change).

Unpack the data In 2019, Singapore’s GDP increase by 0.7%, indicating

that SG’s GDP only increased by a small percentage.

Justify WHY it is of This is of concern because slower increase in GDP

concern (i.e. harmful suggests that the income per capita is rising slowly,
consequences) assume population size remain constant → disposable
income increase slowly → amount of goods and services
that can be consumed increase slowly → slower increase
in material SOL

Unemployment rate
Identify the indicator SG government might be concerned about the high
unemployment rate.

Unpack the data The high unemployment rate indicates that large
percentage of labour force is actively searching for jobs
but not employed/working.

Justify WHY it is of This is of concern because this suggests that large

concern (i.e. harmful percentage of resources is left idle and not fully utilised
consequences) for productive purposes, contributing to the Singapore’s
economy.
OR
This is of concern because this suggests that large
percentage of labour does not have an income → unable
to consumer goods and services → low material SOL.

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Inflation rate
Identify the indicator SG government might be concerned about the low
inflation rate of 0.6%.

Unpack the data The low inflation rate indicates that the GPL is increasing
too slowly, which could suggest that AD is rising slowly.

Justify WHY it is of This is of concern because a weak AD suggests weak C,

concern (i.e. harmful I and X. It means that Singapore could be experiencing
consequences) negative economic growth soon with AD falling. A fall in
AD in the future would mean that there is a fall in RNY →
fall in income per capita in the future, assume population
size remain constant → disposable income falling in the
future → amount of goods and services that can be
consumed falling → fall in material SOL in the future.
Thus, it is of concern as SG government needs to
intervene to prevent such harmful consequences from
occurring.

(b) Explain how the weakening of British pound might improve the UK [5]
economy.

Question Analysis:

Key words from the Meaning of the key words

question

Command “Explain how” Explanation of the process of how the

weakening of Pound (trigger) will affect
the UK economy (outcome)

Content “Weakening of British Depreciation of Pound against other

pound” currencies -> What are the impacts on
X & M?

Using the AD-AS model to explain the

“Improve economy” impacts of depreciation on
macroeconomic aims -> Economic
Growth, Unemployment and Inflation

Context “UK economy” Extract 2

Suggested Answer:

According to extract 2, there is a sharp depreciation of the British pound against the Euros
and the United States dollar (USD). The depreciation of the British pound can improve the
UK economy.

With a depreciation of the pound, prices of the UK’s exports become cheaper in foreign
currencies like the Euros and USD. Prices of the UK’s imports become more expensive in

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pound. Assuming that the demand of exports and imports are price elastic, a fall in the
prices of exports in terms of foreign currencies will cause a more than proportionate increase
in quantity demanded for British exports from other countries like the European Union and
the United States. This is supported by Extract 2 which mentions that a depreciation of the
pound will benefit UK exporters and attract more foreign tourists to the UK as it is more
affordable.

Therefore, the increase in revenue due to the more than proportionate increase in quantity
demanded of exports outweighs the fall in revenue due to a fall in prices of exports in foreign
currencies. Thus, British’s export revenue (X) increases. At the same time, the rise in prices
of imports in terms of the pound due to the depreciation of the pound will cause a more than
proportionate decrease in quantity demanded of imports. The fall in expenditure due to a
more than proportionate decrease in quantity demanded of imports outweighs the increase
in expenditure due to the increase in prices of import in terms of the pound. Thus import
expenditure (M) falls.

The rise in X and a fall in M will cause net exports (X-M) to increase. The increase in (X-M)
will increase aggregate demand (AD) since it is a direct component of AD. Assuming the
UK economy is not at full employment level, an increase in AD will increase real national
output.

The increase in real national output can help to increase the actual economic growth of the
UK which has remained low at 1.5% in 2019 as seen from Table 1. Furthermore, to meet
the increase in demand of goods and services, businesses will increase hiring to increase
production, which also leads to a fall in unemployment. Lastly, the increase in general price
level can help to increase the low inflation rate to a higher level.

Level Descriptors Marks

L2 An answer which 4-5

● Conceptually accurate and well developed explanation of
how a depreciation of the pound will lead to an increase in
X and a decrease in M using PED
● Explains the impact of an increase in (X-M) on at least 2
aspects of the economy
● Makes good reference to the case materials

L1 An answer which 1-3

● States how a depreciation of the pound will lead to an
increase in X and a decrease in M, causing an increase in
AD
● States the impact of an increase in AD on the economy
● Makes some or poor reference to the case materials

(c) Using an AD/AS diagram, explain the likely impact of the Productivity [5]
Solutions Grant on Singapore’s economic growth.

Question Analysis:
• “Using an AD/AS diagram”: mark is awarded for correctly drawn, well labelled and
referenced diagram.
• “likely impact”: the word “likely” suggests that the impact may not be found in the extract

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• “Productivity Solutions Grant” is a government policy to support companies keen on
adopting IT solutions and equipment to enhance business processes. It encourages
companies to increase spending on capital goods.
• “economic growth” refers to actual and potential economic growth

Actual EG
PSG encourages companies to adopt IT solutions & equipment → encourage firms to invest
in capital goods → increase in AD0 to AD1 → increase in RNY by multiple times due to
multiplier effects → actual EG

Potential EG
PSG encourages companies to adopt IT solutions & equipment → encourage firms to invest
in capital goods → increase qty and/or quality of capital goods → increase in productive
capacity → increase the maximum amount of goods & services that can be produced →
increase LRAS from LRAS0 to LRAS1 and Yf0 to Yf1 → potential EG.

(d) Discuss the case for a government to aim for a high rate of economic [8]
growth.

Question Analysis:
• “Discuss”. Two sided arguments with evaluation required
• “high rates of economic growth”: Excessive growth
• “case for …high rates of economic growth”: reasons for growth. Positive outcomes
associated with high rates of economic growth
• 2nd POV: “case against… high rates of economic growth”: reasons against growth.
Negative outcomes associated with high rates of economic growth

Introduction:
Economic growth is a measure of the rate of increase in a country’s real GDP. Government
around the world tends to aim for high rates of economic growth as it can bring about many
benefits to the country. However, it is also important to be mindful of the problems that high
rates of economic growth can bring about at the same time.

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(Requirement 1) Positive outcomes associated with high rates of economic growth

Body 1:
[Topic sentence] High rates of economic growth can lead to greater improvement in material
standard of living of the residents in a country as mentioned in Extract 3.

[Explanation] With high rates of economic growth in the country, unemployment rates in the
country tends to be low since more labour is required to increase the production of goods
and services in the country. This generates an increase in income for the households which
enables them to consume more goods and services e.g. education mentioned in Extract 3,
increasing their material standard of living. This increase in material standard of living will
be very significant since the rates of economic growth is high/excessive.

[Example] An example of a country with high rates of economic growth is China and over
the past few years, it has also been observed that their standard of living did improved with
their high rates of economic growth.

[Link] In view of the greater improvement in material standard of living for the residents, the
government should pursue high rates of economic growth.

Body 2:
[Topic sentence] High rates of economic growth can lead to faster reduction in income-
inequality in a country as mentioned in Extract 3.

[Explanation] With high rates of economic growth, more tax revenue can be collected by the
government since most firms and households are experiencing rising income levels.
Government spending can also be reduced since less unemployment benefits/social
assistance are given out due to the fall in unemployment rate which tends to be associated
with high rates of economic growth. Together, the government budget position can be
improved and the government will have more funds available for the redistribution to the
lower income group, reducing income-inequality in the country. This reduction in income-
inequality will be very significant since the rates of economic growth is high/excessive.

[Example] Taking Singapore as an example, the aim of inclusive growth has enabled the
Singapore government to ensure that no one is left behind as the country progress and
enjoy the high rates of economic growth. The lower income group tends to receive more
transfer payment from the government which effectively lowers the income-inequality in the
country.

[Link] In view of the faster reduction in income inequality, the government should pursue
high rates of economic growth.

Requirement 2: Negative outcomes associated with high rates of economic growth

Body 3:
[Topic sentence] High rates of economic growth can lead to faster environmental
degradation and also worsen the non-material standard of living of the residents.

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[Explanation] To achieve high rates of economic growth, more forest could have been
cleared to make way for the factories. If there is no environmental regulation in place, most
firms will adopt the cheaper method of production, which also tends to be more polluting.
The constant burning of coal to generate energy can release a very significant amount of
harmful particulars into the atmosphere which generates negative externalities to the third
parties e.g. residents living nearby as they may suffer from respiratory issues. This can
worsen the mon-material standard of living for the residents.

[Example] It is also observed in Extract 4 that India environment is increasingly filled with
smog and its lakes are more prone to fires.

[Link] In view of the faster environmental degradation and also worsening of the non-material
standard of living of the residents, the government needs to reconsider the case for high
rates of economic growth.

Body 4:
[Topic sentence] High rates of economic growth can lead to widening income-inequality

[Explanation] If the high rates of economic growth is achieved through the use of automation
and technology, highly skilled workers with relevant skills will be able to experience a faster
increase in their income level. However, those lowly skilled workers with obsolete skills will
be displaced from their jobs as their jobs have been taken over by the machines. As such,
the income inequality in a country may actually increase instead with high rates of economic
growth.

[Example]

[Link] In view of the widening income-inequality, the government needs to reconsider the
case for high rates of economic growth.

Evaluation
Whether government should pursue high rates of economic growth depends on a few
factors:

Firstly, it depends on the ability of the government to minimize the negative impact on the
country while enjoying the benefits associated with the high rates of economic growth. As
mentioned earlier, workers with obsolete skills may be displaced from their jobs and if the
government is able to fund the training for these retrenched workers to help them to move
into new sectors in the economy, the income-inequality may not necessarily worsen.
Instead, investment in human capital can bring in long term benefits for the country as it
promotes potential economic growth. This is also highly dependent on the amount of
government funds available. Taking Singapore as an example, the prudent government has
accumulated budget surpluses over the years and this has enabled the Singapore
government to fund training programme e.g. Workfare to uplift the skills of the low wage
workers.

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Also, whether government should pursue high rates of economic growth also depends on
the method in which growth is being achieved. If the high rates of economic growth comes
about due to longer working hours, the non-material aspect of standard of living may worsen
instead since individual have less leisure time and may feel more stress by the hectic
lifestyle.

Conclusion:
As discussed, economic growth can be a means to raise a country’s standard of living, and
is thus highly beneficial. However, governments need to take extra care to moderate the
rate of economic expansion or put in place measures to ensure that growth is sustainable
and inclusive. This is because it is more important in the long term that the state of the
environment and health of the labour force can continue to contribute towards economic
growth, and that the country can remain an attractive economy to invest in. Hence, the
government may wish to implement measures to address the negative externalities in
production, and redistribute income, before the costs of economic growth outweighs its
benefits.

Level Descriptor Marks

L2 An answer that explains both the benefits and costs of economic 4 to 6m
growth with good use of case evidence and own knowledge.
L1 An answer that explains either the benefits or costs of economic 1 to 3m
growth, or
An answer that explains both benefits and costs but lacks depth
of analysis.

Level Evaluation Marks

E2 A valid judgment that considers the relative weight of the benefits 2 m
and costs of economic growth, based on nature of economy,
government’s priorities, and/or whether there are ways to mitigate
the costs of growth etc.
E1 A poorly supported judgment that growth is more beneficial than 1m
harmful (or vice versa).

(e) Using the information given and your own knowledge, discuss whether [10]
the standard of living is higher in Singapore or the UK in 2019.

Question Analysis:
Key words from Meaning of the key words
the question

Command “Discuss Whether” Balanced answer with evaluation

● “Singapore may have a higher
standard of living based on…”
● “UK may have a higher standard of
living based on…”

Content “Standard of Material and non-material standard of living

Living” (MSOL & NMSOL)

Context “Using the Information from Case Study:

information given Table 1- Real GDP per capita (MSOL),

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 and your own HDI(MSOL & NMSOL) and Gini Coefficient
knowledge” (Income distribution)

“Singapore and Extract 5 - Work life balance and Health

UK” (NMSOL)

Note: We primarily should use the

information from the case study before using
own contextual knowledge of Singapore and
UK

Suggested Answer:

Introduction:

Standard of living (SOL) consists of two aspects, the material and non material standard of
living. Material SOL is reflected by the amount of goods and services individuals in a country
can enjoy whereas non-material SOL looks beyond income and considers factors such as
education, health and the amount of leisure time one can enjoy. To have a good holistic
comparison of the SOL between Singapore and the UK, both aspects of SOL should be
considered.

Body:

(Requirement 1) Singapore’s living standards could be higher than UK’s

[Topic Sentence] Singapore could have a higher material SOL as compared to the UK
as it has a higher real GDP per capita.
● [Evidence] According to Table 1, Singapore has a higher real GDP per capita than
the UK in 2019.
● [Explanation] The higher GDP per capita implies higher household income for the
average citizen in Singapore, implying a higher purchasing power which allows the
average citizen to consume more goods and services.
● [Link] Therefore, Singapore has a higher material SOL than the UK.
● [Evaluation] However, it may not be accurate to use real GDP per capita measured
at US dollars to compare the material SOL between Singapore and the UK as it does
not take into account the difference in purchasing power between the two countries.
Using GDP per capita adjusted by Purchasing Power Parity (PPP) may provide a
more accurate comparison of material SOL between the two countries as it
measures the amount of foreign currencies needed to buy the same basket of goods
and services in the two countries.
● [Transition Statement] Furthermore, real GDP per capita does not measure the
degree of income inequality of a country and a high degree of income inequality can
reduce the accuracy of real GDP per capita as an indicator of material SOL.

[Topic Sentence] The UK’s income distribution is more equal as compared to

Singapore.
● [Explanation] Real GDP per capita only reflects the average income of residents in
the country. A higher real GDP per capita in Singapore indicates a higher average
income. However, real GDP per capita is unable to show the income distribution and
whether the higher income is enjoyed throughout the different segments of the
society in Singapore. It is possible that the higher income is only enjoyed by certain
segments of the society while the rest of the segments do not experience an increase

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 in income or even experience a fall in income. If that is the case, then material SOL
has not improved for the majority of the residents in the country. Therefore, real GDP
per capita may have overstated the level of material SOL in Singapore.
● [Evidence] Therefore, one should also look at the income distribution of a country
to have a more accurate evaluation of the SOL of a country. The UK has a lower
GINI coefficient as compared to Singapore, indicating that there is more income
equality.
● [Link] This indicates that income is more evenly distributed in the UK, indicating that
the high material SOL in the UK is experienced by a greater proportion of residents
as compared to Singapore.

[Transition Statement] Furthermore, real GDP per capita can only compare the material
SOL between the two countries. To have a more comprehensive evaluation of SOL, non-
material SOL such as education and healthcare should also be considered.

(Requirement 2) UK’s living standards could be higher than Singapore’s

[Topic Sentence] The UK could have a higher SOL as compared to Singapore as it

ranked higher in the HDI.
● [Explanation+ Evidence] HDI is a more comprehensive indicator of SOL as
compared to real GDP per capita as it measures both the material and non-material
aspects of SOL. HDI is a composite indicator that is made up of three separate
indexes. The material aspect of SOL is reflected by Gross National Product (GNP)
per capita adjusted by PPP. This is a more accurate indicator than real GDP per
capita to compare the material SOL. The non-material aspects of SOL are reflected
by an education index that measures the mean years and expected years of
schooling and the health index that measures the life expectancy of the country. The
UK ranks higher in the HDI Index than Singapore. This suggests that UK citizens on
average could be living longer than average Singaporeans and thus have better
health that results in higher quality of life, which increases the non-material SOL.
Furthermore, UK’s citizens on average could have a higher number of years of
education as compared to average Singaporeans which may provide them with more
opportunities to get a higher paying job in the future. This allows them to have access
to higher quality of life such as having better healthcare and housing that again
improves their non-material SOL.
● [Link] This indicates that despite Singapore’s higher material wellbeing, UK’s overall
living standards is higher than Singapore, suggesting that UK’s non-material SOL in
terms of education and health may be higher than Singapore.
● [Transition Statement] However, while HDI attempts to measure the non-material
SOL, it is only measuring two aspects of it. There are other important areas such as
the amount of leisure time that also impacts the SOL.

[Topic Sentence] The UK could have a higher non-material SOL than Singapore as it
has better work life balance.
● [Explanation + Evidence] From Extract 5, the UK ranks higher than Singapore in
the work life balance survey which measures the average number of hours worked
per week and the perceived level of happiness among other factors. Singaporeans
may not have a higher SOL even if they may be earning higher income as they are
working longer hours and have fewer leisure time as compared to the UK’s citizens.
Long working hours and limited time for leisure can lead to workplace stress that can
affect workers’ physical and mental health, thereby decreasing their non-material
SOL. Therefore, achieving a high material SOL can be at the expense of worsening
the non-material SOL.
● [Link] This suggests that the non-material SOL of the UK in terms of work life

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 balance is higher than Singapore.

Evaluation and Conclusion:

Evaluation 1
● [Stand] Based on the data given, the UK seems to have a higher SOL than
Singapore.
● [Criterion] To accurately evaluate the SOL of a country, the aim is to be as
comprehensive as possible.
● [Justification] However, it is very difficult for one indicator to capture all the different
aspects that contribute to SOL. This is because different individuals will have
different factors that affect their SOL. As such, the aim to have comprehensive
evaluation of SOL can be achieved by using multiple indicators. For example, HDI
together with Gini Coefficient and Work Life Balance survey can be used to assess
the material, non-material aspects of SOL and income distribution. From both HDI
and Gini coefficient, it seems that the SOL of the UK is higher than Singapore.

Evaluation 2
● [Stand] Based on the current data provided, there is insufficient data to conclude
which country has a higher SOL.
● [Criterion] To accurately evaluate the SOL of a country, the aim is to be as
comprehensive as possible.
● [Justification] However, the current data provides limited scope to compare the
SOL of the two countries, especially on the non-material aspects of SOL. While the
current data may suggest that the UK has a higher SOL in terms of the non-material
SOL and income distribution, looking at other aspects of non-material SOL such as
safety and crime and level of corruption can paint a very different picture. To assess
safety, the Safe Cities Index 2019 conducted by the Economist Intelligence Unit can
be used and Singapore is ranked the highest for infrastructure and personal safety.
The Corruption Perception Index which is reported by Transparency International is
often used to assess the level of corruption in a country and Singapore is ranked 4th
while the UK is ranked 12th. Therefore, in order to have a more comprehensive and
conclusive evaluation of SOL between the two countries, perhaps more indicators
or a composite indicator that looks at more areas should be used.

Level Descriptors Mar

ks

L3 An answer which 6-7

● Considers both the aspects of material and non-material SOL
in the comparison of SOL between Singapore and the UK
● Makes good reference to the case materials and/or own
knowledge

L2 An answer which 4-5

● Considers both the aspects of material and non-material SOL
in the comparison of SOL between Singapore and the UK but
lacks depth in analysis
● Makes some reference to the case materials and/or own
knowledge
OR
An answer which
● Considers only the aspects of material or non-material SOL in

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 the comparison of SOL between Singapore and the UK
● Makes some reference to the case materials and/or own
knowledge

L1 An answer which 1-3

● Is superficial with limited economic analysis
● Has serious conceptual errors
● Makes limited reference to the case materials and/or own
knowledge

Evaluation

E2 For answers with a well-supported evaluation on whether Singapore 2-3

or the UK has a higher SOL using sound criterion. Possible criterion:
● Evaluation on SOL has to be comprehensive and takes into
account both material and non-material SOL. A combination of
indicators can be used in order to have a holistic evaluation of
SOL.
● The scope of non-material aspects of SOL is still limited and
more information should be provided to make a better
evaluation of SOL.

E1 Unsubstantiated overall judgement 1

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SECTION B: Essays

2 “Economic growth is the best way to increase living standards.”

Source: The Guardian, 13 Dec 2019

(a) Explain the factors that determine a country’s economic growth. [10]

Approach:
• Explain what is meant by economic growth – actual growth and potential growth.
• Use AD-AS analysis to explain the factors that determine the country’s actual and potential
economic growth

Introduction:

Economic growth is the rate of increase in GDP. GDP refers to the monetary value of goods
and services within the boundaries of a country in a period of time. Economics growth rate is
positive when GDP is rising.
GDP is determined by the economy’s AD and AS. Changes in factors that affect the economy’s
AD and AS would have an impact on GDP, hence affecting actual and potential economic
growth.

(Requirement 1) Factors that determine short-term economic growth

P Changes in GDP, or changes in economic growth can be due to changes in AD.

E (Explain) The change in AD can be due to changes in domestic demand .Factors that
changes domestic demand, such as economic expectations and interest rates would
affect domestic demand.
(Example) For example, falling interest rates → lower borrowing costs → cheaper to
borrow money for spending → increases C and I.
(Example) In the case of Singapore, the slow economic growth in 2019 could be due
to weak domestic demand caused by weak business and consumer confidence.
Expectations of slower global growth and trade tensions between China and US
dampens business expectations, causing firms and households to either cancel or
postpone their investments and consumption respectively → lowering AD.
E (Explain) Changes in AD can also be due to external demand.
(Example) Fall in export due to trade tensions between US and China → lowers the
country’s overall AD
E (Elaborate) The increase in AD → through the multiplier process → increase
employment as national output increase → actual economic growth is achieved
economic growth.
E (illustrate) As seen in figure 1, the
increase in AD0 to AD1 results in real Figure 1
national income increasing from Y0 to Y1.

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 L Hence an increase in AD will lead to an increase in NI, thereby increases economic
growth. This economic growth is referred to as actual growth,

P Actual economic growth can also be determined by changes in SRAS.

E The change in SRAS could be due to the country’s costs of resources that increases the
economy’s production costs.
E For example, an increase in labour costs, or increase in energy costs due to rising price of
crude oil, will increase firms’ production costs. To maintain profit-margin, these firms will cut
down production, causing a fall in SRAS, lowering the economy’s national output, hence
slowing down economic growth
L Hence actual growth is not only determined by AD but also SRAS that is mainly caused by
changes in cost of production,

(Requirement 2): Factors that determine potential growth

P Long run economic growth, or potential growth is determined by AS, which is

determined by quantity and quality of the economy’s resources.
E Improvement in technology e.g. through digitalisation and mechanisation, as well as
increasing the skills of the workers through labour training. This will increase productivity,
causing an increase in the country’s productive capacity. This increases the economy’s
productive capacity, increasing LRAS → increase NI and hence potential economic growth

E This is reflected in the the rightward shift of Figure 2

LRAS curve from LRAS0 to LRAS1 results in
an increase in the full employment real
national income from
Yf0 to Yf1.

L Potential growth is determined by factors that affect the economy’s economic capacity and
hence LRAS

Conclusion:

Summarise the main points:

Economic growth is determined by changes in the economy’s AD and AS.
Actual growth (or short-term growth) is determined by changes in AD and costs of resources
that affect SRAS. On the other hand, changes in LRAS determines the economy’s potential
economic growth.

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(b) Discuss how far Gross Domestic Product (GDP) is a good indicator of the standard of
living in a country. [15]

Focus: Whether GDP is a good indicator of SOL. This question is NOT on space or time
comparison of SOL
Context: “In a country” - Students may use any country as example
Command: “Discuss”. The key word in this questions is “good”. Hence students are required
to assess the extent of GDP as an indicator of SOL and the type of GDP data
that can more accurately indicate SOL

INTRODUCTION:
SOL refers to the material and non-material SOL. While GDP may reflect the kind of material
SOL a country has, it is very limited in indicating the non-material SOL.

(Requirement1: GDP may indicate the level of a country’s SOL)

T It is possible to gauge SOL from the country’s GDP.

E (Explain) GDP indicates the monetary value of the goods and services produced that
are available for the people in the country to enjoy. GDP gives an indication on the
country’s economic activities such as amount of output produced and availability of
jobs and various sources of income for the people.
E (Explain) Also indicates the income earned by the people as a whole and therefore
the amount of goods and services they are able to buy.
L Hence, higher GDP indicates higher goods and service and higher household
income implying higher SOL

Transition: Which GDP can give an indication of a rough gauge of the SOL in the country, it
does not give an accurate indication of SOL.

(Evaluation of GDP as an indicator of SOL: GDP may not necessarily be an accurate

measure of a country’s SOL)

T The accuracy of GDP as a good indicator of SOL depends on the GDP data that is
used to measure SOL.
E1 (Explain) Real GDP data is better than nominal GDP in indicating SOL as, unlike nominal
GDP, real GDP is measured at the base year price to take away the effect of changes in
GPL.
(Elaborate) i.e. it takes into consideration the GPL of the goods and service, hence more
accurately reflect the households’ purchasing power, i.e. how much goods and services
they can buy with their given income.
E2 (Explain) Specifically, real GDP per capita is a better indicator of SOL than just real GDP.
(Elaborate) Real GDP is the total value of goods and services produced in the country and
does not take into consideration the population size of the country. On the other hand, real
GDP per capita is GDP divided by population. It reflects the average income earned by
the households in the country.
L Hence, real GDP per capital is a better indicator of material SOL than real GDP and
nominal GDP.

Transition: However, although real GDP per capita indicates the average income earned per
household, it is not a good indicator of the overall SOL of the country.

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Transition paragraph:
T Real GDP per capita does not indicate the distribution of income earned.
E (explain) A country with high real GDP per capita does not mean SOL is high if the income
disparity between the minority rich and majority low-income groups is very large.
E (elaborate) Additional information such as GINI coefficient is required to indicate the level of
income inequity in the country. This will give a clearer indication of the material SOL of the
country.
L Therefore, real GDP per capita alone is not a good indicator of SOL.

(Evaluation 2)

T For GDP to be a good indicator of SOL, there is a need to scrutinize closely the composition
of the GDP
E1 (Explain) GDP with large consumption expenditure as a proportion of GDP would indicate
higher SOL as the large Consumptions reflects the higher households’ spending on the
goods and services, giving the impression of the households’ purchasing power.
(elaborate) On the other hand, a GDP with high proportion on export and investment
indicates the economy’s high dependence on export and investment to grow, but does not
reflect the households’ spending on the goods and services produced in the country.
(evaluate) However, one cannot conclude that a country with lower Consumption proportion
of GDP to have a lower SOL than another country with a higher C as a proportion of its GDP.
(Example) One cannot conclude that Singapore, with its C making up less than 40% of its
GDP to have lower SOL than Japan that has more than C more than 70% of its GDP
E2 (explain) Likewise, High government spending does not necessarily indicate high SOL.
(Example) like Pakistan, the high government spending is mainly on defense and military
equipment. On the other hand, a government budget that attempts at narrowing the country’s
income gap and on social development would reflect a high SOL.
L Hence for GDP data to be a good indicator of SOL, there is a need to look closely at the
composition of the GDP

(Evaluation 3)

T Whether GDP is a good indicator of SOL also depends on the accuracy of the GDP
data.
E1 (explain) This is especially so for countries whose economic activities are largely non-
monetised with exchanges of goods and services made through barter trade such as DIYs
and subsistence farming. Such large “shadow economy” makes it smaller than the actual
goods and services produced in the economy.
(example) A developing country with large agricultural sector that is largely made up of
subsistence farming is likely to lead to an undervalued GDP.
(example) In Singapore, the large unlicensed home-based businesses that are transacted
through the social media such as Facebook and Instagram generate incomes are not
reported.
E2 (Explain) Reliability of data is also affected by the quality of the data collected.
(example) Large amounts of income that goes undetected, either due to the illegality of the
activities or under-declaration of income, affect the reliability of the GDP data as an indicator
of SOL
E3 (explain) The accuracy of GDP also depends on the country’s capabilities in gathering
relevant data accurately, depending on the country’s available expertise and technology in
acquiring reliable relevant data.
L Hence GDP is a good indicator of SOL in a country that has the capability to gather more
accurate and reliable data so that the GDP value would be able to accurate determine the
material SOL in the country

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Transition: At its best, GDP data, particularly real GDP per capita, is measure of material
SOL, albeit the reliability and accuracy of the data. However, it is not good as an
indicator of non-material SOL.

(Requirement 2: Other indicators used to measure SOL)

T GDP is very limited in indicating non-material SOL

E It does not indicate working hours per week or the amount of leisure people enjoy.
GDP, and even real GDP per capita, does not indicate information on standard of
education, healthcare, pollution and other social factors that could provide insights on
the quality of life of the people in the country.
E Hence other data, eg. HDI, is needed to complement the GDP data to have a clearer
indicator of Sol
L Therefore, although GDP may be an indicator for the material SOL, other information
is require to indicate non-material SOL.

CONCLUSION/ OVERALL EVALUATION

• GDP gives an indication of the goods and services that the people on the country can
enjoy, and also the overall income earned by the country
• However, for GDP to be a good indicator of SOL, depends on the GDP data is nominal
GDP or real GDP. Real GDP per capita is possibly a good indicator of material SOL, as it
reflects the average household’s purchasing power.
• However whether it gives an accurate indication of SOL depends on the reliability and
accuracy of the data, given that some economic activities and output produced e.g.
subsistence farming, DIYs are not recorded in the GDP. This is made worse by under-
declared income to avoid paying higher income taxes.
• Even at its best, GDP, and even real GDP per capita is limited as an indicator of non-
material SOL

Knowledge, Application, Understanding and Analysis

L3 • A thorough and detailed analysis that considers the condition that affects the 8-10
accuracy or usefulness of GDP in determining a country’s SOL.
• Clear explanation and illustration with appropriate examples of both material
and non-material welfare.
• Balanced answer that considers the use of GDP data to determine the both
material or non-material welfare
• Answer that is aware that this question is not on space nor time comparison of
SOL

L2 • Answer that attempts to analyse of how GDP can be an indicator of SOL, but 5-7
not developed and lack use of appropriate examples of both material and non-
material welfare.
• Or
• A generic answer and somewhat not well-developed discussion on problems of
GDP to determine SOL.

L1 • An answer that provides a mere listing of SOL indicators 1-4

• An answer that contains significant conceptual errors and/or irrelevancies,
with incidental/ no reference to context of Singapore.

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 Allow up to 5 additional marks for Evaluation
E3 Assessment supported by sound economic reasoning and economic analysis in 4-5m
considering the condition in which GDP can be a good indicator of SOL.
(For instance, recognising that real GDP per capita is a better indicator than
nominal GDP in determining SOL, or that developed country’s real GDP per capita
is a better indicator of SOL than that of a developing country heavily dependent of
subsistence farming )
E2 For an answer that makes some attempt at evaluation or a conclusion that answers 2-3m
questions, but does not explain judgement or base it on analysis.

E1 Unexplained evaluative judgement(s)/statement(s) i.e. evaluative 1m

judgement(s)/statement(s) not supported by analysis (For instance, answer only
state the limitations of GDP to determine SOL)

Question 3

3 (a) Explain the main macroeconomic indicators that can be used to compare
changes in living standards across countries. [10]

(b) Assess the extent to which an improvement in labour productivity is beneficial to

the Standard of living in Singapore. [15]

(a)
Question Requirements:
• Explain what SOL is
• Explain significance of comparing changes in SOL across countries
• Explain indicators that can be used to compare such changes

(Requirement 1: Using GDP figures that can be used to compare SOL between
countries)

T Define SOL: level of well-being and comfort enjoyed

E (Explain) 2 aspects of SOL: material and non-material SOL

E [Elaborate]:
• Material SOL: quantity and quality of goods and services available to be enjoyed
• Non-material SOL: quality and affordability of housing, hours of work required to
purchase necessities, gross domestic product, inflation rate, number of holiday
days per year, affordable (or free) access to quality healthcare, quality and
availability of education, life expectancy, incidence of disease, etc

L Comparing indicators may show how the population in the country become better off
over time and shows the progress of the economy

TRANSITION: Comparing changes in SOL across countries through the use of indicators
like GDP figures allows economists to assess how well economies and governments are
doing, relatively, in improving living standards in their countries.

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 T Real GDP per capita figures of countries may provide a good comparison of SOL
between countries.
E • Gross Domestic Product: measures the final value of all goods and services
produced within the geographical confines of an economy within a given period of
usually a year.
• To measure changes within a country across a period of time → need to
compensate for inflation (i.e. the sustained, inordinate increase in general price
levels) → use real GDP in order to take into account inflation.

E • Explain real GDP PER CAPITA

o Different countries have different population sizes → need to account for
differences in population sizes → to make numbers comparable, divide real
GDP by population size to obtain real GDP per capita

L It may be insufficient to just consider Real GDP per capita of each country for
comparison, but to include PPP values as well.

Transition: Real GDP per capita may give an inaccurate level of SOL as the cost of living
can be affected by price differences in similar goods in different countries

T Explain real GDP per capita, PPP adjusted

• For comparison across countries, there is a need to use the same base
currency for fair comparison → typically use exchange rate to convert into the
same currency, usually USD
• PPP: the exchange rate that allows say $100 of a country’s currency to buy the
same basket of goods and services in another country
E • Due to various reasons like differences in stage of development, there are
differences in purchasing power of one dollar.
• Despite using exchange rates to convert real GDP per capita into the same base
currency, it is not sufficient to use it as a proxy comparison for differences in
material SOL due to differences in purchasing power
E o E.g., US$100 can buy a different amount of a basket of goods and services in the
US vs. in Mexico.
o Therefore, using real GDP per capita, PPP adjusted, the year-on-year % change
can be calculated for each country to be compared.
o The higher the % change, the more marked the improvement in material SOL in a
country compared to another.

L To compensate for that, PPP adjusted real GDP per capita is used.

Transition: There are also other indicators we may use to compare SOL between countries

T We can use Unemployment rate to reflect the SOL of countries

E • Higher unemployment rate → smaller proportion of population working → lower

income levels → lower mat SOL & lower income tax revenue paid. Lower
consumption → lower corporate tax paid. → government tax revenue falls →
unable to spend as much on provision of merit goods for public → lower non-
material SOL

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 E o Higher unemployment rate → higher amount of social unrest, inequality,
instability, etc → lower non-material SOL

L To compensate for that, PPP adjusted real GDP per capita is used.

Conclusion
Comparing Sol between countries require a comprehensive set of data on the respective
countries’ macroeconomic performance.

Level Descriptors Marks

3 (A) For a well-developed explanation of how macroeconomic indicators can 8-10
be used to compare changes in SOL across countries.

2 (C) For an under-developed answer of how macroeconomic indicators can 5-7

be used to compare changes in SOL across countries.
For lack of consideration of comparison across countries
For lack of consideration of changes in SOL
1 (K) Smattering of points about the use of macroeconomic indicators in 1-4
comparing changes in SOL across economies. Conceptual errors
present

(b) Assess the extent to which an improvement in labour productivity is beneficial to

the Standard of living in Singapore. [15]

Question requirements:
• Explain impact of improvement in labour productivity in SG on SOL – positive
and negative, material and non-material
• Weigh the significance of impact of labour productivity (against other
variables)
Introduction:
o Explain improvement in labour productivity: an increase in output per labour within a
specific time period.
o Backdrop: Singapore economy faces tight labour market → to attain sustainable, non-
inflationary growth, need to increase productive capacity. Since government is unable to
increase size of labour force much further (political, social instability; infrastructure unable
to cope) the better alternative is to improve productivity of each worker.
o Optional: Some examples of measures like STEP, SPUR, CET, etc. Even PIC can help to
improve labour productivity though enabling workers to work with faster and more
efficient equipment

Requirement 1: Improvement in productivity is beneficial to Singapore’s SOL

T Improved productivity can have a positive impact on worker’ motivation and SOL
E • Wages ought to be paid according to productivity level of the worker (because
demand for worker and his/her skills increases)
• Higher productivity → higher wage as fair payment Despite using exchange rates
to convert real GDP per capita into the same base currency, it is not sufficient to

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 use it as a proxy comparison for differences in material SOL due to differences in
purchasing power

E • Worker productivity can be enhanced not only through skills enhancement, but
also through the use of better and more labour-efficient technology and
machines
• If it is through the latter → fewer people needed to fulfil the same purpose and
produce the same output
• E.g. pre-fabrication of housing units has decreased the amount of labour needed
in the construction industry to piece together a house brick by brick, steel bar by
steel bar.
L Those who can upgrade themselves & are sufficiently adaptable to handle the
changes will remain employed and can enjoy higher compensation → higher SOL.
Their motivation can also benefit their firms

Transition: There are benefits to firms and the economy as well with improved labour
productivity.

T Improved productivity can have a positive impact on Firms and the economy overall.
E LR: when labour productivity rises and translates into lower costs/higher
revenue/higher profits for the firms, firms are able to pass these on to the workers in
terms of higher pay
E • With higher labour productivity → each worker can produce more if fully and
efficiently employed → productive capacity increases → LRAS rises
• In face of rising AD in SG close to full cap., this allows SG to experience potential
and sustainable actual growth → rise in real income levels across SG (give
AD/AS analysis)
• In face of rising cost-push pressures from labour crunch shortages which has
been translating into significantly higher prices (especially in the F&B industry,
tourism industry, construction industry), this allows firms to have some respite
from the rising costs of production and consumers from the rising costs of living
L With productivity improvement schemes specifically targeted at the lower-skilled
groups (SPUR), this can also improve income mobility and lower income disparity →
improve SOL.

Transition: However an improvement in labour productivity may not necessarily lead to

higher SOL for Singapore.

(Requirement 2: SOL may not improve evenly across the economy)

T There are parts of the labour force who may not benefit from higher productivity
growth and hence face lower SOL.

E Demand for highly productive workers tends to be higher, but for workers who do not
upgrade themselves → slow or little demand for such labour → depressed wages
E Moreover, there will be a significant number of people who risk being laid off because
technology has replaced them → structural unemployment.
L Firms could bear the higher cost of improving labour productivity through financing of
workers’ skills training.

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Evaluation: SMEs with a tight manpower needs and budget constraints may not be able to
pay for training, and thus workers may be left behind.

T SR: Firms may have to bear the cost of the improvement in labour productivity (e.g.
training courses).

E Higher cost of production incurred → might lower profits in the SR → might be unable
to afford passing on pay increases immediately to worker until results are seen
E The extent of cost they have to bear depends on available grants that the
Government may offer to SMEs to upgrade and upskill their workers.
L Overall, SOL improvement depends on the ability of firms to offer their workers the
opportunity to upgrade their skills.

Conclusion:

The Singapore government would need to take a proactive role in developing a skilled
workforce through a seamless progression of skills improvement that is compounded by a fair
wage system so that SOL can be improved. At the same time, the govt must be wary of
structural unemployment happening to workers who are displaced by the on-going
technological shifts in industries.

Level Descriptors Marks

3 For a well-developed discussion of whether and how improvements 8-10
in labour productivity in Singapore can improve SOL.

2 For an under-developed / one-sided answer of whether and how 5-7

improvements in labour productivity in Singapore can improve SOL.
For lack of consideration of context of Singapore
1 Smattering of points about whether and how labour productivity 1-4
improvements can improve standard of living. Conceptual errors
present.
E3 For an overall evaluative comment that is well-substantiated by 4-5
economic analysis and applied to Singapore’s context (limited
increase in labour force size, non-material SOL aspects)
E2 For a single evaluative comment that is well-substantiated by 2-3
economic analysis, or many comments which are not so well-
explained
E1 For unsubstantiated and sweeping evaluative comment 1

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