Question

Singapore Budget 2015: Parliament Passes Record $79.9 Billion Budget

New schemes announced by the budget statement include ten new hawker centers by 2027, a third desalination plant, SkillsFuture initiative to support lifelong learning for adults, and a second edition of Construction Productivity Roadmap to boost the industry’s capabilities.

Source: The Straits Times, March 13, 2015

.     Explain the supply-side effects of building ten new hawker centers and a third desalination plant. ?

. .    Explain the potential supply-side and demand-side effects of Skills Future initiative.?

Explain the potential supply-side and demand-side effects of adopting new technologies to boost productivity in the construction industry.?

Draw a graph to illustrate the combined demand-side and supply-side effect of the fiscal policy measures in part (a).?

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The economy is growing slowly, the inflationary gap is large, and there is a budget deficit.

1-.    Do we know whether the budget deficit is structural or cyclical? Explain your answer.?

2-.   Do we know whether automatic stabilizers are increasing or decreasing aggregate demand? Explain your answer.?

3- If a discretionary decrease in government expenditure occurs, what happens to the structural budget balance? Explain your answer.?

Answer 1

a) Hawker centres and desalination provides infrastructure for supply of other goods. New hawker centres will provide workplace for food vendors, so tha they can increase their production as new food vendors can enter the market. Desalination plants can reduce the cost and increase the supply of fresh water to be used in homes and industries.

b) SkillsFuture will increase the supply of skilled workers in the economy. On the demand side, it would require recruitment of teachers, trainers and infrastructure.

c) In the construction industry,a boost in technology can reduce the cost of building new structures. Hence, we can expect an increase in supply of new machines and structures. On the demand side, introduction of new technology would demand high-skilled workers, research and development works and infrastructure.

d)

Output is expected to increase. However, movement of price will be determined by the relative strengths of demand and suppy forces.

The economy is growing slowly, the inflationary gap is large, and there is a budget deficit.

1) Budget deficit is structural because in the event of inflationary gap, taxes increase and government spending comes down because people have more incomes and government need not intervene to stabilize economy. So, budget should be surplus, and cyclical deficit wipes out.

2) Autonomous stabilizers is decreasing aggegate output. because economy is growing slow in the vent of inflationary gap.

3) A discretionary decrease in government expenditure can lead to lower structural budget deficit. This is because budget deficit falls when government spending goes down.