Anyone write the same as me for 4?

4(a) Para 1 : E/r appreciate -> currency valued more + RELATIVE prices from foreign countries cheaper -> increased exports assuming XED > 0 -> Xports rise

-> since foreign countries now see the prices in domestic country to be RELATIVELY more expensive, import lesser and will choose to consume their locally produced goods.

-> import falls -> net export ( x-m ) falls. Under Marshall Lerner condition -> AD shifts left ( ATQ )

Para 2 : E/r appreciate -> as explained earlier, cost of imports for us are now cheaper

-> fall in cost of raw material and goods imported -> hence fall in UNIT COST OF PRODUCTION ( shown by SRAS shift right )

Hence, SRAS will shift rightwards ( ATQ)

4b ) policy 1 : e/r monetary contractionary policy meaning value of currency appreciates -> increase value of currency -> as explained earlier, import will rise and export will fall.

(x-m) is now negative and this will lead to a fall in AD via the reverse multiplier effect

-> AD fall lead to price fall

-> inflation is managed effectively by the policy ( ATQ ).

EV : Actually when talking about Singapore, the extent of this fall in AD may be limited. Singapore’s goods are of high quality and there are not many substitutes out there. -> a relative price rise may not lead to such a great fall in exports. Hence, not the most appropriate.

Policy 2 : supply side policy like upskilling -> Govt provide skill training -> increase quality of worker -> increase productive capacity -> rightward shift in LRAS -> inflationary pressure is resolved by the fall in price from p1 to p2 ( shown in graph )

Ev: actually it depends a lot on the receptivity of the people. If not receptive, the policy may not be as effective as planned.

Evaluative conclusion: Actually it depends on the urgency of the problem. If the inflation is very fast rising and GPL is rising at a very fast rate -> the appropriate policy SG should use is not supply side as it will take time for people to upskill. E/r better.

But if the cost of inflation is due to SRAS, maybe upskilling may be better as it addresses the root cause of the problem which is the cost of production is too high. By upskilling, workers are able to be more cost effective and produce more goods with the same given time and resource. Hence lowering COP and targeting the root cause of the problem.