Economics- Explain and discuss why Singapore as a more advanced but also small, trade-dependent economy, Singapore

SECTION A (Total 65 marks)

Question 1

Adjustment by fiscal policy and monetary policy is needed in an open economy like Hong Kong to ensure both internal balance and external balance. For Hong Kong, it also wants to maintain its fixed exchange rate policy. Analyse and discuss the relative effectiveness of fiscal policy and monetary policy in an open economy if Hong Kong were faced with recession and
deficit in balance of payment. (20 marks)

Question 2

Compare fixed and flexible exchange rate systems. Explain and discuss why Singapore as a more advanced but also small, trade-dependent economy, prefers a flexible floating exchange rate system rather than a fixed exchange rate system, given the respective pros and cons of flexible and fixed exchange rates in theory. (20 marks)