Discuss whether the Singapore government should be concerned with inflation.
How can we approach the question?
- Define inflation to be the sustained, inordinate increase in general price level.
- Clarify “concerns”: link to achievement of macroeconomic goals and microeconomic objectives.
- Recognise that there are positive and negative effects of inflation and negative inflation (or deflation) on the achievement of macroeconomic goals and microeconomic objectives and thus economic welfare.
- Thus, the essay will discuss and weigh the relative significance of these effects in order to determine whether the Singapore government should be concerned with inflation.
Thesis: The Singapore government should be concerned with the reported inflation
- Effect on investment
- Effect on external balance
- Effect on purchasing power
- Effect on income and wealth distribution
- Misallocation of resources
- Menu and shoe leather costs
Note: 2-3 points are sufficient. But clear linkage to government objectives (macroeconomic or microeconomic) or linkage to economic welfare / SOL is expected
Anti-thesis: The Singapore government should not be concerned with the reported inflation
Note: Explanation on the deflationary spiral is crucial in explaining the severity of the effects of deflation.
Conclusion and Overall Evaluation
Whether or not Singapore government should be concerned depends on:
- the cause of inflation/deflation
- the relative rate of inflation
- the degree of inflation/deflation
- whether it is anticipated or not
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