10 April 2008 0819 hrs Channel News Asia

SINGAPORE: The Monetary Authority of Singapore (MAS) further tightened monetary policy on Thursday in a bid to address a sharp rise in inflation, allowing the Singapore dollar to continue to rise against other currencies. The move sent the Singapore dollar to all-time highs at US$1.3623 in morning trade, against 1.3810 late Wednesday. In its semi-annual policy statement, the MAS said consumer prices have risen sharply since the second half of last year, reflecting both external and domestic factors. From 0.8 per cent in the first half of last year, consumer price index (CPI) inflation accelerated to 6.6 per cent in January-February, the MAS said. The MAS conducts monetary policy through the local currency rather than by setting interest rates.

The Singapore dollar is traded against a basket of currencies of the city-state's major trading partners within an undisclosed trading band known as the nominal effective exchange rate (NEER). Since its last policy review in October, the NEER has fluctuated in the upper half of the band, the MAS said. "Against this backdrop of continuing external and domestic cost pressures, an upward shift of the policy band at this point will help to moderate inflation going forward, while providing support for sustainable growth in the economy," it said. "MAS will therefore re-centre the exchange rate policy band at the prevailing level of the NEER." Details of the trading band are not made public to prevent speculation in the Singapore dollar. The government on Thursday said Singapore's economy grew at a faster 7.2 per cent in the first quarter of the year, in a report that beat the average forecast made by economists. On April 11 last year, the Singapore dollar was trading at US$1.5182. - AFP/ac

Read the article and relate it to what you have learnt, especially those in bold. Explore the role of the government in sustaining economic growth as well as how the exchange rate can affect consumer prices and helps to moderate inflation.

An interesting news article which you might want to look at:

MPs raise concerns about Singapore's monetary policy
By Wong Siew Ying, Channel NewsAsia Posted: 27 February 2008 2142 hrs

When asked whether the Singapore dollar should be allowed to appreciate at a faster pace to tackle inflation in Parliament on Wednesday, Minister for Trade and Industry Lim Hng Kiang noted that Singapore cannot totally insulate itself from the effects of global prices. He said the Monetary Authority of Singapore (MAS) did allow the currency to appreciate at a faster rate during its last policy review in October 2007 amid uncertainties in external economic and financial markets. Although such move helped to counter inflationary pressure, Mr Lim, who is also the deputy chairman of MAS, reminded the House that there was a limit to how much the Singapore dollar can appreciate without hurting growth.

The other question raised was whether interest rates can be used as another tool to manage Singapore's monetary policy. Mr Lim said, "Studies by MAS over the years have shown consistently the exchange rate has the most significant impact on growth and inflation than interest rate. Once we have an open capital account, the monetary policy can only influence either the interest rate or the exchange rate but not both." "If you try to have an exchange rate at a certain level, then you still want to raise (the) interest rate… what will happen is you will attract a lot of inflow of foreign capital and your exchange rate (will) strengthen far beyond… (the) intended level," he added.

1. Define what is exchange rate.
2. Explain the meaning of appreciation of the Singapore dollar.
3. How can the exchange rate affect economic growth and inflation?
4. According to Mr Lim, why is it that the "monetary policy can only influence the interest or the exchange rate but not both"?
5. What is a capital account?

You can download the 2006 paper and marking scheme from
http://www.cie.org.uk/qualifications/academic/middlesec/olevel/subject?assdef_id=906

Just a glimpse of the paper Q1:

Trade and production in Bangladesh

At one time, international trade agreements ensured an export market for clothes made in Bangladesh, but these were due to end in 2005. It was feared that many workers in Bangladesh would lose their jobs as a result. The Foreign Minister hoped that the trade in medicines would grow sufficiently to reduce that unemployment. The Foreign Minister said that in 2004 Bangladesh was exporting medicines to 60 countries and could produce them up to 70% cheaper than the Developed World. He said that if Bangladesh, a developing country, could get 2% of the global trade in medicines it could be worth many times the clothing exports that Bangladesh had lost.

In 2004, 150 local firms and 6 multi-national companies manufactured medicines in Bangladesh. However, the production of medicines employed just 50 000 workers and most future jobs would require highly trained technicians. The clothing trade employed 1.8 million unskilled workers and accounted for more than 75% of Bangladesh’s exports.

(a) State four ways in which multi-national companies can help developing countries such as Bangladesh. [4]

(b) International trade agreements can protect jobs. Despite this, some economists prefer free trade to trade agreements. Explain why. [6]

(c) Summarise the main argument of the Foreign Minister of Bangladesh. [4]

(d) Why might it be difficult for employment in the clothing industry to be replaced by employment in the manufacture of medicines? [6]

1 (a) employment, multiplier effects (do not expect this term), boost to exports, by encouraging development of new skills, introducing new technologies, improved working conditions, any other valid points, e.g. improvement in infrastructure.
1 mark each, maximum (4). [4]

There is no mark for a definition of a multi-national company.

(b) Analysis of the idea of specialisation and opening markets worldwide, production at lower costs, increased efficiency, more competition, wider choice, lower prices. Note: core candidates are required to know about specialisation at international level but not about comparative advantage.
Identification up to 3 marks. Explanation up to 3 marks. [6]
If candidates only deal with the first sentence, maximum of 4 marks.

(c) There will be unemployment if clothing manufacture ceases (1), but this could be replaced by manufacture of pharmaceuticals (1), boost exports (1), the great advantage that B has, was that its production was much cheaper than other countries (1). Straight copying: 2 marks maximum. [4]

(d) One industry is very labour intensive, the other is not. 50,000 currently in medicines, 1.8m currently in clothing.

Occupational immobility of labour. e.g. lack of skills.
Multi-national companies may be wary of locating in Bangladesh, due to possible instability.
(Note – we do not expect candidates to demonstrate a detailed knowledge of Bangladesh.) [6]

I must say I am proud of our first batch of students who took Economics at O level. All the 14 students passed (100%) with 8 of them scoring distinction(57.1%).

Read on for some of the interviews with students who scored distinction for Economics (2007).

How has the learning of Economics benefited you?
Studying Economics have helped me in my life. By studying the concept of Economics such as DEMAND AND SUPPLY, I am able to know how the market works. These concepts are pretty useful to be used in life. It certainly will help people in their everyday lives. It definitely helps me to think about how things go about (example: inflation and what causes it et cetera).

What do you think has led to you getting good results for the subject?
I think this is just an average result for my standard (laughs). To get good grade for this subject, I practice the concepts on a regular basis. I tried not to memorise these concepts. I only memorise the definitions. To be frank, I took a risk when I first chose this subject during Secondary 2. Firstly, I will be in the pioneer batch and thus, I won't have anyone to refer to (those who have taken this subject for O level). To further-aggravate the matter, we did not have a proper text book like what we usually have for other subjects. We only have some pretty good A level book and GCSE book from the UK. Fret not, I took everything in my stride. Fortunately for me, I have two rather dedicated teachers: Mrs. Patty Gan (Sec 3) and Mrs. Lily Lee (Sec 4). They were very passionate about helping the students to achieve good grades. Their passion triggers some baptism of fire in me to get good grades. Plaudits have to be given to them.To further spur me up, I got a bad result for my preliminaries: C5. I told myself to prove on the Real Stage. I pushed myself to at least achieve B3. By having the all-important slice of luck, I managed to achieve a distinction. At the end of the day, HARDWORK PREVAILS!

Would you encourage more students to take up the subject?
Without any doubt, I will encourage more students to take up the subject. Albeit the word Economics will send chills down student¡¯s spine (like what I felt at first), it is a rather-friendly subject. It is quite easy if you pay full attention in class. Economics is not a subject that is limited only in the classroom. One can easily use the concepts in their everyday lives. Like what, I have always done, I relate what I read in the news to Economics (almost everything: politics, social and even sports, entertainment). On hindsight, Economics is a subject that will benefit everyone. Definitely, a five-star subject. No doubts about that!

Zulkhairi Yaacob (Hougang Secondary 2007 Economics student)


After learning Econs I began to see things in different ways and perspectives. I could also apply some concepts to our daily life. It often helps to get a clearer and more realistic view of our future, for example like employment, and the wage rate- well at least for me. I used it to set my target for the course I am gonna apply for.

Actually, Econs is'nt hard at all. The foundation and basic is very important. Once you have grasped the concept correctly, you will be able to excel in it even without memorizing. So overall, Econs is great!!!

I opted for banking and finance as it's intake is'nt that many as compared to other business courses so I hope I get in. I think Econs will help me skip some of the modules which they are gonna teach.

Chun Rong 2007 Econs student

Learning econs has benefitted me a lot. After taking up the subject, I look at many things from a different perspective. When I read an article about, let's say for example "rising costs of flour" in the papers, I understand the causes and effects of the phenomenon. Before I learnt Economics, I would skip such articles because I know I would'nt understand it even I if read on.

Basically, Econs has enabled me to have a deeper understanding of the things happening around me. I would definitely encourage more students to take up economics, because the knowledge it gives is very practical and applicable to one's everyday life.

Economics is involved whenever there is buying and selling going on. Economics is not just an O level subject, it is a life skill - something that one would use throughout his life.

As for me, I loved the subject. The interest made me try to relate the everyday things in my life with the subject; like for example, when I notice that there's a rise in price of the food in a hawker center,I think about the possible factors that might have caused it. It eventually became a habit sort of thing, and as I used to say only as a joke when my friend asked how I got a certain good grade for an exam, "it's in my blood". but then again, hardwork counts too; interest alone can never bring one very far.

I am currently waiting for the posting results to come out, which will be on the 19th Feb. If all goes well and Iget into my first choice, I'll be studying aeronautical engineering in singapore polytechnic.

Willie 2007 Econs student