QUESTION 6

In the framework of the Swan model, assume that Singapore was achieving both internal and external balance, prior to the outbreak of COVID 19. Assume that Singapore faces a relatively inelastic IB schedule and a relatively elastic EB schedule.

(a)Illustrate a likely outcome of the COVID19 virus on both internal and external balance and mark Singapore's current post virus position on a Swan Diagram as X.

(b)Briefly explain how and why an attempt to restore internal balance will disrupt external balance

(c)What automatic mechanisms may help restore internal balance? How effective might these mechanisms be in the current economic situation brought on by the Covid19 virus?

(d)Following the recommended policy assignment rules, what policies should be put in place to restore general macroeconomic equilibrium.