BM0008: The Central idea of Keynes’s Economics is the Management of the Business Cycle: Macroeconomics Case Study, NYP, Singapore

1.  AssignmentOutline

This individual assignment constitutes 40% of the overall assessment for the module,

BM0008 Macroeconomics. The assignment covers the following topics:

• Theory of National Income,
• Fiscal & Monetary Policy,
•  International Trade.

The assignment is designed to give each of the learners a first-hand experience of applying the Macroeconomics concepts acquired in the course to solve a real-life economic problem.

2.  Learning Outcomes

After the completion of this project, learners will be able to:

1. Understand key economic issues affecting a country, a society, and businesses using the economic concepts they have acquired.
2. Analyze the economic issues and trends based on a case study.
3. Apply macroeconomic concepts in problem-solving initiatives.

3. Requirements

This is a written report assignment. Please read the case (attached in Appendix 1) and submit a report based on the requirements stated below.

You are to relate and apply relevant economic concepts and theories in your report. Please choose THREE (3)economic concepts and theories listed below for your report from the following:

(i)      Determination of National Income

(ii)     Business Cycles

(iii)    Unemployment

(iv)    Price Distortion

(v)     Fiscal policy

(vi)    Monetary policy

(vii)   International trade

Your report submission should include the following:

• Cover Page– Include a cover page with the project title, name, and admission number of the learner (Please refer to Appendix 2).
• Background and Introduction -Provide background research findings on whether Singapore also uses similar policies stated in the case article in Appendix 1 to tackle the COVID-19 pandemic.
• Economic Analysis –Identify 3 problems and provide economic analysis for each of the problems encountered by the Singapore government or society in managing the economic situation of the businesses, employees, and (groups of) people during the pandemic situation. The impact on the standard of living for the country must also be discussed and addressed. For each of the problems, you are to use one of the selected economic concepts listed in section 3 for detailed analysis. Appropriate use of graphical analysis is expected.
• Recommendations– Explain how each key recommendation could resolve each of the economic problems identified.
• Conclusions–A summary of the problems identified, economic concepts used for analysis, and hence, the recommendations.
• Reflection– Provide a reflection of 200 words stating your opinion on how the current economic situation may affect you.  Highlight your understanding of the issues and concepts learned in this module

Case Study Article 1:

The central idea of Keynes’s economics is the management of the business cycle—how to fight recessions and ensure that as many people who want work can get it. This key idea became the ultimate goal of economic policy.

Keynesian economics envisaged that governments were supposed to run large deficits (i.e. spending more than they took in taxes) during downturns to prop up the economy, with the expectation that they would pay down the accumulated debt during the good times. However, if policymakers tried to stimulate without tackling underlying structural deficiencies, then they would raise inflation without bringing unemployment down. And high inflation could then persist, just because it was what people came to expect.

The monetarist idea was to crush inflation by constraining the money supply, even though doing so also produced a recession that sent unemployment soaring. Many monetarists argued that policymakers before them had focused too much on equality of incomes and wealth to the detriment of economic efficiency. They needed instead to focus on the basics—such as low and stable inflation—which would, over the long run, create the conditions for living standards to rise.

In 2020, the coronavirus pandemic hit. Supply chains and production have been disrupted, which all else being equal, should have caused prices to surge as raw materials and finished goods were harder to come by. But the bigger impact of the pandemic has been on the demand side, causing expectations for future inflation and interest rates to fall even further. The desire to invest has plunged, while many people are now saving much of their income.

Even before covid-19, policymakers were starting to focus once again on the greater effect of the bust and boom of the business cycle on the poor. But since the economy has been hit with a crisis that hurts the poorest hardest, a new sense of urgency has emerged. That is behind the shift in macroeconomics. Devising new ways of getting back to full employment is once again the top priority for economists.

In recent years most central bankers have gravitated towards exhorting governments to use their budgets to boost growth. So far this year rich countries have announced fiscal stimulus worth some $4.2trillion, enough to take their deficits to nearly 17% of GDP, while central-bank balance-sheets have grown by 10% of GDP. This enormous stimulus has calmed markets, stopped businesses from collapsing, and protected household incomes.

Huge fiscal-stimulus programs mean that public-debt-to-GDP ratios are rising. To some, the idea of turning the fiscal tap to full blast is a call for countries to print their own currency (such as America and Britain) and ignore debt-to-GDP ratios, until unemployment and inflation return to normal.