Question A
Singapore has been active in forming free trade area with many economies over the years. It has established free trade area with the other ASEAN members, USA, China, Japan, South Korea, Australia and New Zealand, among others.
(a) Explain the possible benefits of the free trade area to the Singapore economy. (10 marks)
(b) Discuss whether there will be any negative effects of the free trade area to the Singapore economy. (5 marks)
Question B
(a) Consider an economy operating under a flexible exchange rate system. It is encountering a recession and also having a balance of payments deficit. At the same time it is also encountering inflationary pressure. Analyse what would be the suitable policies for the economy to solve these problems. (10 marks)
(b) Analyse how would your answers be different in (a) if the economy were to operate under a fixed exchange rate system instead. (10 marks)