What this lesson teaches
I can explain fiscal, monetary and supply-side policy and judge how well each works.
Syllabus 9570, 3.2.3(b). Macroeconomic Policies: Policy measures and their effectiveness in achieving macroeconomic objectives:; Fiscal policy - How discretionary fiscal policy can influence the level of economic activities and living standards through government spending and taxation; Monetary policy - How monetary policy can influence the level of economic activities and living standards through the management of exchange rates (case of Singapore) and interest rates; Supply-side policies - How supply-side policies can improve quantity, quality and mobility of factors of production to increase the productive capacity of an economy and hence affect living standards
Make a guess
The Singapore dollar strengthens. What happens to the price of imported food in Singapore?
- It rises, because exports become dearer.
- It stays the same, because food prices are set abroad.
- It falls, because each S$ buys more foreign currency.
Show the answer
It falls, because each S$ buys more foreign currency.
Singapore imports most of its food. A stronger S$ means fewer S$ are needed to pay the same foreign price.
A stronger currency makes imports cheaper and exports dearer, lowering both inflation and AD.
When the Singapore dollar appreciates, each S$ buys more foreign currency.
Imports become cheaper in S$. Since Singapore imports most of its food, energy and inputs, this lowers costs and consumer prices directly. SRAS shifts down.
Exports become dearer for foreign buyers, so export demand may fall. Imports become more attractive. AD shifts left, which also reduces demand-pull inflation.
So appreciation fights inflation through both channels. The cost is weaker export competitiveness, although many Singapore exports contain imported parts, so their costs fall too.
Put these in order
MAS lets the Singapore dollar appreciate faster. Put the chain to lower inflation in order.
- SRAS shifts down and AD shifts left.
- MAS steepens the slope of the S$NEER policy band.
- Inflation in Singapore falls.
- Imported food, energy and inputs become cheaper in S$.
- The Singapore dollar appreciates.
Show the answer
- MAS steepens the slope of the S$NEER policy band. The S$ is now set to rise faster against the currencies of trading partners.
- The Singapore dollar appreciates. Each S$ buys more foreign currency, so imports cost fewer S$.
- Imported food, energy and inputs become cheaper in S$. Firms' costs fall, and some exports become dearer for foreign buyers.
- SRAS shifts down and AD shifts left. Lower costs and weaker export demand both ease pressure on prices.
- Inflation in Singapore falls.
- Appreciation
- Cheaper imports: SRAS down.
- Also
- Dearer exports: AD left.
- Cost
- Weaker export competitiveness.
Worked example: An exporter buys an imported input
The S$ rises from buying US$0.50 to US$0.60. An imported input costs US$60. The firm's export sells for S$100.
- The input costs S$120 before (60 / 0.50) and S$100 after (60 / 0.60): cheaper.
- The export costs foreign buyers US$50 before and US$60 after: dearer.
- The firm gains on its costs but may lose some sales.
- The net effect depends on how much imported content it uses and how price-sensitive its buyers are.
Watch out for this
A stronger currency is always bad for exporters.
It makes exports dearer, but also makes imported inputs cheaper. For Singapore's import-heavy exporters, the two effects partly offset each other.
Check your understanding
In April 2026 MAS steepened the S$NEER slope after imported energy prices jumped. Why might a Singapore electronics exporter lose less than the dearer export price alone suggests?
- Its imported parts and energy cost fewer S$, so its own costs fall too.
- A steeper slope lowers Singapore interest rates, so its loans get cheaper.
- Foreign buyers pay the same, because the exporter sets its prices in S$.
Show the answer
Its imported parts and energy cost fewer S$, so its own costs fall too.
Right. Singapore exports contain many imported inputs, so a stronger S$ cuts costs as well as raising the foreign price.