Question

1. In 2016, there were fears that the Singaporean economy could enter a recession because of falling demand from China, its biggest export market. One of the results of a recession is likely to be a fall in consumer spending. A previous recession in 2008 had led to unemployment increasing from 1.6% to 3.4%. Singapore’s central bank therefore decided to intervene in the foreign exchange market to influence the value of the currency. (a) Define recession. [2] (b) Explain why a recession is likely to reduce consumer spending. [4] (c) Analyse the consequences of rising unemployment on a government’s spending and tax revenue. [6] (d) Discuss whether or not an exchange rate depreciation will prevent an economy from experiencing a recession. [8]

Answer 1

Explanation:

In 2016, there were fears that the Singaporean economy could enter a recession because of falling demand from China, its biggest export market. One of the results of a recession is likely to be a fall in consumer spending. A previous recession in 2008 had led to unemployment increasing from 1.6% to 3.4%. Singapore’s central bank therefore decided to intervene in the foreign exchange market to influence the value of the currency. (a) Define recession. [2] (b) Explain why a recession is likely to reduce consumer spending. [4] (c) Analyse the consequences of rising unemployment on a government’s spending and tax revenue. [6] (d) Discuss whether or not an exchange rate depreciation will prevent