(a) Discuss the likely causes of a rise in consumer spending in Singapore [10]
This paper discusses the likely causes of a rise in consumer spending in Singapore. Consumption refers to the planned spending on consumer goods and consists of both autonomous and induced consumption. There are several factors that can cause a rise in consumer spending in Singapore.
Firstly, induced consumption could be due to national income changes. Singapore may experience high economic growth rates in recent years which led to the growing affluence of Singaporeans. This rise in national income translates into an increase in purchasing power which would mean that households would be able to spend more on consumer goods and services. Eventually, there will be a rise in consumption indicated by a shift of the curve. However, the extent of the rise in consumption depends on the value of the MPC and whether the rise in national income is permanent.
Apart from this, autonomous consumption also increases. This could be done to firstly, consumers expectations. Strong economic forecasts and stability in both internal and external environment would lead to an optimistic outlook on the economy. Therefore, there will be strong consumer confidence as people tend to save less for rainy days and expect future increase in income, leading to a rise in consumption. However, the extent of the rise depends on how optimistic consumers are judging from the outlook and whether this outlook is a temporary or permanent phenomena.
Secondly, consumption increase may be due to government policies or disposable income rise. A fall in income tax rates (which reduces the reliance on direct taxes) and the increase in transfer payments in recent years have led to an increase in the disposable income. Households are likely to down more due to the increase in purchasing power. However, the extent of increase in consumption depends on the propensity to consume and other factors - for example, a rise in GST from 5% to 7%
Lastly, interest rates and credit availability also affect consumption. Lower cost of borrowing and loosening of credit facilities as seen by growing varieties of credit cards available in the market and the aggressive advertising tactics that follow show an encouragement on the bank's part to consume. It is now cheaper and easier to borrow in order to purchase consumer durables and there is a reduced incentive to save due to lower returns, therefore leading to a rise in consumption.
The extent of the rise, however, depends on the interest elasticity of consumption, the economic outlook and availability of past savings.
JC Economics Essays - Economics Tutor's Comment: This response is quite a good attempt at answering the economics question posed, especially during examination conditions. Fair work, and a good effort, given that this was done under "A" level Economics examination conditions. However, there are some possible areas of improvement - putting yourself into the shoes of an Economics tutor or examiner, what would you do to improve this economics paper, other than drawing in the correct Economics diagram and then explaining it carefully? What other economics details should have brought into this paper in order to improve it? Thanks for reading and cheers. Suggested grade: 8/10.
