Following our previous article on Theme 3.1: Introduction to Macroeconomics, Zenith is looking to provide you with yet another comprehensive guide! In this guide, we’ll be covering Theme 3.2: Macroeconomic Aims and Policies. This article will cover 3.2.1 and 3.2.2 (refer to Fig 1. below). 3.2.3, Macroeconomic Policies, will be addressed in a subsequent article instead. Do check out the article on Theme 3.1 if you have any conceptual misunderstandings on Macroeconomic concepts such as Aggregate Demand (AD) and Aggregate Supply (AS), as they are the foundation upon which the entire A Level Macroeconomics syllabus is designed.
In Fig 1., Zenith has provided you with the A Level H2 Economics Syllabus for Theme 3.2, which is titled Macroeconomic Aims and Policies. If you are studying JC Economics at the H1 Level, please refer to Fig 2. which shows the concepts you need to be familiar with for Theme 3.2, which is titled Standard of Living (SOL) instead of Macroeconomic Aims and Policies. The A Level H1 Economics Syllabus focuses significantly less on policies, and we have indicated throughout the article the concepts that are only relevant to H2 students. The concepts boxed in red in Fig 1. are concepts applicable to H2 students only.
Fig 1. A Level H2 Economics Syllabus for Theme 3.2
Fig 2. A Level H1 Economics Syllabus for Theme 3.2
Macroeconomic Aims (H2 only)
Macroeconomic aims include both material and non-material aspects and consist of three main aspects:
1. Economic Growth
Economic growth is defined as the increase in the amount of goods and services produced and provided by a particular economy over a period of time. It includes an expansion of the labour force, technological improvements, increases in the production of capital goods, and growth in human capital.
2. Low Unemployment
Low unemployment rates mean that the percentage of the population (who are willing and able to work) seeking employment is relatively low compared to the percentage of the population that is employed. When the unemployed are able to find employment, they are likely to increase their level of consumption as a result, which ultimately has a positive effect on the circular flow of income through the multiplier effect. The government also has lower expenditure when it does not need to hand out unemployment subsidies to individuals. Non-material benefits of a low unemployment rate include greater security and less unrest, which can arise when the unemployed resort to illegal means to survive.
3. Stable Prices (Low Inflation)
Stable prices are important to the economy as they act as the foundation for economic growth. Low inflation and deflation mean that money maintains its value, which optimises purchasing power. Similar to how low unemployment means that more individuals are willing and able to consume, stable prices create a secure environment within which consumers are willing to spend, as there is lower fear of the value of their assets depreciating and appreciating constantly.
Standard of Living (SOL)
For H2 students, SOL is categorised as one of the means through which the achievement of Macroeconomic aims is measured.
Its definition is as follows: Standard of Living (SOL) refers to the well-being of an average individual belonging to a country. The overall SOL of an economy indicates both its material and non-material well-being.
Material Well Being: The quantity and quality of goods and services available to the average individual belonging to a country for their consumption
Non-Material Well Being: The working hours, pollution level, stress level (mental health) of the average individual belonging to a country, as well as other factors which affect their quality of life
Comparisons of SOL
Measurements of SOL can be conducted on two levels:
1. Inter-temporal
Inter-temporal comparison refers to the comparison of SOL done over different times, typically between past and present. National income statistics such as Gross Domestic Product (GDP) and purchasing power per person are used as an indicator of whether the average Singaporean, for example, in 1960, had a lower SOL than, for example, a Singaporean in 2010.
2. International
International comparison refers to the comparison of SOL done over different spaces, typically between countries. National income statistics such as Gross Domestic Product (GDP) and purchasing power per person are used as a measure of whether the average individual in, for example, Singapore, enjoys a higher SOL than, for instance, an average individual in the United Kingdom or China.
Economic Performance and its indicators
Economic Growth
As mentioned previously in this article, Economic Growth at the A Level JC Economics examinations is defined, in general terms, as the increase in the amount of goods and services produced and provided by a particular economy over a period of time. There are, however, different types of Economic Growth that can occur. For the purposes of the A Level JC Economics examinations, both H1 and H2 students will need to know and be able to explain the following two types of Economic Growth.
1. Sustainable growth
Sustainable growth refers to a state of Economic growth where the current rate of expansion can be maintained well into the future for upcoming generations without significant problems such as depletion of resources or environmental concerns. It gestures towards positive and stable growth over an indefinitely extensible period of time. For sustainable growth, there might be a trade-off between rapid growth in the present and continued growth in the future. This is because prioritising rapid growth in the here and now can often result in the depletion of natural resources, which are limited in quantity and quality. Exhausting these resources, such as fossil fuels, in the near future will mean that growth cannot continue for an extended period of time as the inputs for growth are no longer available. Another issue that can arise from rapid growth today is environmental degradation. Environmental problems such as global warming can significantly affect whether a particular country is inhabitable in the future, hence, it is important to balance environmental preservation and growth in today’s society.
2. Inclusive growth
Inclusive growth refers to a state of Economic growth that is broad-based across numerous economic sectors (i.e. evenly distributed across different industries), which results in productive country-wide employment opportunities for the majority of the society in a particular country. This prevents widening income disparities that often occur between the rich and poor when rapid economic growth occurs. A case in point that the A Level Economics syllabus requires both H1 and H2 candidates to be well-acquainted with is that of Singapore.
The Singapore government attempts to achieve inclusive growth by focusing on creating productive employment opportunities for all communities in society. Skills upgrading programmes such as SkillsFuture are implemented to encourage all individuals to upskill themselves and hence become eligible for more high-paying job opportunities. Jobs are also created in government sectors, which accommodate a wide range of skills and aptitudes, such that more individuals are employed. The Job Support Scheme (JSS) also encourages employers to retain their local employees instead of replacing them with foreign employees by providing a subsidy in local employees’ salaries for a period of time. These schemes go towards promoting inclusive growth by attempting to mediate the income gap between the rich and poor. They are complemented by a social safety net where lower and middle-income groups have their cost burdens alleviated partially with tax rebates, subsidies, and GST vouchers, among others. For instance, during the pandemic, the Covid-19 Recovery Grant was rolled out. It provides up to $700 in subsidies to those who were retrenched unwillingly and are unable to find new jobs. Children belonging to lower and middle-income families are also given more subsidies and are entitled to bursary awards in school, which ensures their access to education, which is regarded by the Singapore government as a means for individuals to equip themselves with skills necessary for better employment opportunities in the future. These bursaries are available throughout one's school career––the Edusave Merit Bursary Award is given out to students in primary, secondary schools, and JCs whose monthly household income does not exceed $6900 or whose per capita income does not exceed $1725. Tertiary learning institutes also provide privately or institutionally sponsored scholarships, sometimes in conjunction with the government.
Price Stability
An economy is in a state of price stability when its General Price Level (GPL) increases at a low, stable, and expected rate. There are no significant fluctuations in the GPL (i.e. sudden and/or high inflation or deflation). Inflation is marked by an increase in the GPL while deflation is indicated by a decrease in the GPL. Low positive inflation is equated with price stability as it is harmless, under control, and an indication that the economy is experiencing steady economic growth. This is as an increase in the GPL when the AS is at Point A, as shown in Fig 3., indicates that the economy is expanding. This is unlike when the AS is at Point B, which is when the GPL is increasing but there is no increase in RNI, which is a cause of inflation, as explained in our previous article, which occurs when an increase in price does not result in an increase in output.
Fig 3. AS Graph
Employment
Full employment occurs when there are enough job vacancies such that all individuals in the labour force, who are willing, able to work, and are job-seeking, can be employed. It does not mean that everyone who is willing and able to work is employed. For instance, the economy is regarded as theoretically in full employment if there are 1000 job seekers at present and 1000 job vacancies. It does not matter that these 1000 individuals are not matched to the 1000 vacancies. In reality, some of these spaces may not be filled due to a lack of information, where the job seekers are not aware of the vacancies, or due to a skills mismatch, where the job seekers do not have the skills required for a particular job. This results in a “natural” state of unemployment, where there will always be some job vacancies in an economy as job seekers go through the process of job searching or skills retraining to prepare for a new job.
Unemployment is defined as a situation where individuals in the labour force, who are willing and able to work, are unable to find employment. This means that they belong to the particular economy’s age group where it is legal to work and that they are physically and psychologically able to work. They also have to be actively seeking employment. For instance, a 24-year-old university student who is not actively looking for employment is not considered unemployed.
Balance of Trade (BOT) (H2 only)
The Balance of Trade (BOT) of an economy refers to its overall statement of all trade flows between residents of its country with the rest of the world, which is typically measured over a year. A favorable position of BOT occurs when the money received by a country’s economy exceeds the amount of money that it has had to pay to other countries' economies. This puts the country’s BOT in a state of payment surplus, which contributes, from the government’s perspective to general economic growth. For consumers, it means increased ability to consume and hence, a higher material SOL. For producers, who are driven by the profit motive, this expansion of the economy results in higher revenue and hence profits, since consumers are more willing and able to consume. BOT is derived by calculating the net exports of a country, which is defined by X (export revenue) - M (import expenditure).
To sum up, Zenith, as Singapore’s top Economics tuition center, has covered the following concepts in this article:
Types of Macroeconomic Aims (H2 only)
Standard of Living (SOL) and its indicators
Economic Performance and its indicators
Economic Growth
Price Stability
Employment
Balance of Trade (H2 only)
Click here for Zenith’s next article on Theme 3.2.2 on Macroeconomic Policies!
While this article focuses on Macroeconomics, Zenith has also introduced you to Scarcity: The Central Economic Problem and important concepts in Microeconomics in previous articles. We strongly recommend that you refer to these articles if you are feeling uncertain about certain key ideas in the A Level Economics Syllabus such as Demand and Supply, Price Elasticity, or types of Government Intervention in Economic Markets. You may access these articles on the A Level Economics syllabus here:
Theme 1.1: Scarcity as the Central Economic Problem
Themes 2.1.1. and 2.1.2: Price Mechanisms, Demand and Supply
Theme 2.1.3: Price Elasticity and Government Intervention
Does all of this sound too overwhelming? Do you feel like you may need extra help with A Level Economics? That’s perfectly normal! Many other students, having never been exposed to the subject prior to entering Junior College, tend to struggle with it too so you’re not alone. There’s no need to fret! The study of A Level Economics can be extremely fulfilling and fun. Join the Zenith family today as our young and dedicated tutors bring you on an enjoyable journey to ace your A Level Economics examinations while equipping you with knowledge relevant to real life. Find out about our JC Economics tuition programme here and contact us for a trial lesson today! If you’re keen to read all about our testimonials, you can head here. The results don’t lie! We look forward to seeing you (and your friends) in class!
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