Discuss whether the Singapore government should be concerned with inflation.

How can we approach the question?

Introduction

  • 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

  • Inflation may be beneficial if it is mild
  • Inflation may not be harmful if it is anticipated and necessary adjustments are made
  • Inflation is preferred as compared to negative inflation (deflation)

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

For a full hands-on demonstration on how to write a coherent answer to the question, join our A-Level Economics Tuition Programme.

 

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