What this lesson teaches
I can link living standards to growth, low unemployment, stable prices and a healthy balance of trade.
Syllabus 9570, 3.2.1(b). Standard of Living and Macroeconomics Indicators: Standard of living is affected by an economy's ability to achieve macroeconomic objectives in terms of sustainable and inclusive economic growth, low unemployment, price stability and a favourable balance of trade position
I can read real GDP, GNI, per-capita figures, unemployment rate, CPI, balance of trade, HDI and the Gini coefficient.
Syllabus 9570, 3.2.1(c). Standard of Living and Macroeconomics Indicators: Macroeconomic indicators; Indicators of economic performance include real Gross Domestic Product (GDP) or Gross National Income (GNI), real GDP or GNI per capita, unemployment rate, Consumer Price Index (CPI) and balance of trade; Human Development Index (HDI) as an indicator to reflect standard of living; Gini coefficient as an indicator to reflect income distribution
Make a guess
During a recession, Singapore's trade surplus grows. Is this good news?
- Yes. A bigger surplus means exporters are doing well.
- No. A trade surplus is bad, because it pushes up the exchange rate.
- Not necessarily. Imports may have fallen because incomes fell.
Show the answer
Not necessarily. Imports may have fallen because incomes fell.
A surplus can grow because people buy fewer imports in hard times. Look at why it changed before judging.
The balance of payments records a country's transactions with the rest of the world; a trade surplus is not always good news.
The balance of payments has three main parts. The current account records trade in goods and services, plus income flows such as profits and wages paid across borders. The capital account records certain capital transfers. The financial account records investment flows, such as foreign firms buying shares or building factories.
The trade balance compares the value of exports and imports. Check whether a figure covers goods only, or goods and services.
A trade surplus is not always good. If imports fall because a recession has cut incomes, the surplus grows even though living standards have fallen.
Singapore runs large current account surpluses, reflecting high saving and strong exports.
- Current account
- Trade and income flows.
- Financial account
- Investment flows.
- Caution
- A surplus can come from falling imports.
Worked example: A surplus caused by weak spending
In a recession, Singapore's imports fall sharply as incomes drop, while exports stay the same. The trade surplus grows.
- The bigger surplus comes from falling imports, not rising exports.
- Imports fell because households and firms are spending less.
- So the surplus reflects weaker living standards, not better ones.
Watch out for this
A bigger trade surplus always means the economy is doing better.
A surplus can grow because imports fall in a recession. Look at why it changed.
Check your understanding
A foreign firm buys shares in a Singapore company. Where is this recorded?
- In the financial account.
- In the current account, as income from abroad.
- In the trade balance.
Show the answer
In the financial account.
Right. Investment flows are recorded in the financial account.