TEMASEK JUNIOR COLLEGE PRELIMINARY EXAMINATION 2007

ECONOMICS HIGHER 2 PAPER 2

TUESDAY 11 SEPTEMBER 2007

9732/02

1400 1615 HOURS

READ THESE INSTRUCTIONS FIRST Write your CG and name on all the work you hand in. Write in dark blue or black pen. You may use a soft pencil for any diagrams, graphs or rough working. Do not use staples, paper clips, highlighters, glue or correction fluid. Do NOT turn over this page until you are told to do so.

Answer three questions in total, of which one must be from Section A, one from Section B and one from either Section A or Section B. At the end of the examination, fasten all your work securely together with the string provided. The number of marks is given in brackets [ ] at the end of each question or part question.

This question paper consists of 2 printed pages. [Turn over

2007 Preliminary Examination / Economics H2 9732/02

2 Answer three questions in total. Section A One or two of your three chosen questions must be from this section
1 The terrorist attack on New York on 11 September 2001 caused a worldwide recession and an increased fear of flying, both of which severely affected the demand for travel by air. This led to the closure of some of the major airlines in the world. (a) (b) With the aid of diagrams, explain how the recession and the closure of some of the major airlines of the world affected the market for air travel. [10] Assess the relevance of price elasticity of demand, income elasticity of demand, cross elasticity of demand and price elasticity of supply in explaining the effects of these events on the airline industry. [15]

Firms all aim to grow larger due to the pursuit of market power. Hence, a reduction in competition and a rise in consumer exploitation is an inevitable result of any capitalist economy. (a) (b) Explain why firms grow in size. Comment on the validity of the above statement. [10] [15]

The existence of an externality implies market failure and means that the good should necessarily be provided by the government. Discuss. [25]

Section B One or two of your three chosen questions must be from this section
4 In both 2005 and 2006, Singapores GDP grew by 6.7% and 7.9% respectively despite a slowdown in the growth of consumer spending from 3.1% to 2.5% respectively. (a) (b) Explain the factors that are likely to cause a slowdown in the growth of consumer spending. . [10] Discuss whether a slowdown in the growth of consumer spending should ever be a cause for concern for economic policy makers in Singapore. [15]

The July 2007 inflation rate in Singapore hits 2.6%, highest in over 12 years

The Straits Times, Friday August 24 2007

(a) (b) Explain what causes inflation. . [10] Discuss whether an increase in the rate of inflation is more likely to cause problems for the domestic or the external sector of the Singapore economy. [15]

Singapores strategy had to be to focus on growth, while maximising opportunities for all Singaporeans opportunities to get a good education, to work or grow a business, to retrain and upgrade, and to own a home.

Ministry of Finance, Thursday February 15 2007

With reference to the statement, consider whether economic growth should be the central objective of government macroeconomic policy. [25]
2007 Preliminary Examination / Economics H2 9732/02