The United States has proposed a Trans-Pacific Partnership (TPP),

Question 1The United States has proposed a Trans-Pacific Partnership (TPP), which is a regional free trade areaintended to enhance trade and investment among the partner countries. As at 2014, there are 12members participating in the TPP, including USA, Australia, Brunei, Canada,Chile, Japan, Malaysia,Mexico, New Zealand, Peru, Singapore and Vietnam.(a) Discuss and explain the possible benefits and costs of members joining the TPP?(10 marks)(b) A major obstacle in the TPP is the rigourous objection by the Japanese farmers on the import offarming product into Japan without tariff. With a suitable diagram, analyse why the Japanesefarmers are strongly opposing the removal of tariffs on farming product into Japan.(10 marks)Question 2(a) Refer to the website of Singapore Department of Statistics, balance of payments athttp://www.singstat.gov.sg/statistics/browse-by-theme/international-accounts.Search for the reports on the balance of payments of Singapore from 2010 to 2013. Go throughthe reports and discuss the current account balance and the capital account balance. Explain thebalance of payment position of Singapore over time. What can you say about the investor’sconfidence about investing in Singapore?(10 marks)(b) Singapore has been able to control inflation well in spite of the lack of natural resources whichrequires importing many products from other countries and hence subject to import inflation. Theinflation rate is hovering around 3% over a long period of time. Based on the purchasing powerparity theory, what can you predict about the strength of Singapore dollar against the majortrading partners’ currencies? Explain.(5 marks)Question 3(a) Consider an open economy without a government sector. It has the components of aggregatespending as follows:C = 120 + 0.8YM = 60I = 500X = 200C is consumption, Y is income, M is import, I is investment and X is export.(i) Discuss and determine the saving function, the multiplier, the equilibrium level of income andthe trade balance at the equilibrium level of income.(5 marks)(ii) Suppose import now becomes positively related to output as M = 60 + 0.05Y. What is the newmultiplier, the new equilibrium level of income and the new trade balance at this equilibrium levelof income? Discuss.(5 marks)(b) Analyse why monetary policy is ineffective under a fixed exchange rate system.(5 marks)Question 4(a) An economy on a fixed exchange rate system has been running a trade surplus for many years.This has led to accusations by its trading partners that the economy has deliberately undervaluedits currency to boost its export. Analyse the effect on the economy’s trade balance and balance ofpayment when its currency is under-valued. What can you comment on the output andemployment of the economy? Discuss with the help of a suitable foreign exchange marketdiagram.(8 marks)(b) Analyse the effect on the trade balance, balance of payments, output and employment of aneconomy when the economy that implements a fixed exchange rate system overvalues itscurrency. Discuss with the aid of a suitable foreign exchange market diagram.(7 marks)