Question

1) Explain the impacts of Industrial Revolution 4.0 (IR 4.0) on the equilibrium levels of employment and wage rate using labor market diagram

2) With the aid of foreign exchange market diagram, explain the effect of an increase in interest rate in Singapore on the Malaysian ringgit–Singapore dollar exchange rate (MYR–S$) and currency value of both countries.

Answer 1

1) Industrial revolution 4.0 consists of Internet of things and essentially everything turning automated. This will lead to greater employment opportunities for highly skilled workers and higher wage rates, with the majority of the population being unskilled having lower employment opportunities.

Thus because of automation, wages move up from W1 to W2 wherein highly skilled employees are paid more

and quantity of overall labor demanded reduces from Q1 to Q2. Thus there is a labor surplus market.

2) Increase in interest rates in singapore, would mean domestic and foreign investors would try to save in Singapore and thus earn higher level of interest rates. Demand for Singapore dollars would increase which will increase the value of the currency and demand for Malaysian ringgit would reduce which would reduce the value of the currency.

Thus as demand for Singaporean dollars increases from D to D1, the value of the dollar increases and the Malaysian ringgit gets undervalued. Thus $1 Singaporean dollar is equal to 3 ringgit, but because of the increase in demand for the dollar $1 is equal to 3.5 malaysian ringgit. Thus by giving 1$, one gets more malaysian ringgit.