Economics Flashcards

Why is Singapore particularly vulnerable to imported inflation?

Answer: Because Singapore is heavily dependent on imports for food, energy, and raw materials, so global price increases directly affect domestic prices

Singapore imports virtually all its food, energy, and raw materials. When global commodity prices rise, these costs are passed through to domestic consumers, making Singapore highly susceptible to imported inflation.

What is the primary tool of monetary policy used by the Monetary Authority of Singapore (MAS)?

Answer: Exchange rate management through the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) policy band

Unlike most central banks that use interest rates, MAS manages monetary policy through the exchange rate, adjusting the S$NEER policy band. This is more effective for Singapore's small, open, trade-dependent economy.

What type of market structure is a monopoly?

Answer: A single seller dominating the entire market with high barriers to entry

A monopoly is a market structure with a single seller, no close substitutes, and significant barriers to entry (legal, natural, or strategic). The monopolist is a price maker.

What is the 'crowding out' effect in the context of Singapore's fiscal policy?

Answer: Government borrowing raises interest rates, which reduces private sector investment and consumption

When the government borrows heavily to finance spending, it competes with the private sector for funds, potentially driving up interest rates and reducing (crowding out) private investment.

What is a 'negative externality' and give a Singapore-relevant example?

Answer: A cost imposed on third parties not involved in a transaction, e.g., air pollution from factories affecting nearby residents' health

A negative externality is a cost borne by third parties who are not part of the economic transaction. In Singapore, examples include industrial pollution, traffic congestion, and second-hand smoke.

How does Singapore's free trade agreement (FTA) network benefit the economy?

Answer: It reduces or eliminates trade barriers, giving Singapore exporters preferential access to markets and attracting foreign investment

Singapore's extensive FTA network (with the EU, US, China, ASEAN, etc.) provides preferential market access for exports, attracts MNCs that use Singapore as a hub, and reduces costs for imported inputs.