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

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

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

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

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

Answer 1

a) change in budget is cyclic in nature as the change occured today can be recovered in the upcoming years.

b)here in the given situation automatic stabilizers are actually increasing the aggregate supply thus encourgaing the aggregate demand to rose up.

as new hawker centre will increase food supply with better condition, future skills will supply educated adults as human resource thus increasing aggregate supply.

c)If a discretionary decrease in government expenditure occurs, then there will be budget surplus or we can say there will be balanced budget having no structural issues as expenditure is what determine the upliftment of economy so there will b issues with overall growth of economy.