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2012 A-level Macroeconomics Qn 5. During 2009 the Bank of England engaged in what is known as ‘quantitative easing; by pumping more than $200Billion into the economy. Record low levels of interest rates have also been maintained within the UK economy. Quantitative easing and low interest rates were also adopted by the US. (a) Explain why exchange rates rather than interest rates are the preferred choice as the instrument of monetary policy in Singapore. [10] (b) Discuss the likely impact on the Singapore economy of quantitative easing and low interest rates in the US and the UK. [15] by Mind Map: 2012 A-level Macroeconomics Qn 5.   During 2009 the Bank of England engaged in what is known as ‘quantitative easing; by pumping more than $200Billion into the economy. Record low levels of interest rates have also been maintained within the UK economy. Quantitative easing and low interest rates were also adopted by the US.  (a) Explain why exchange rates rather than interest rates are the preferred choice as the instrument of monetary policy in Singapore. [10] (b) Discuss the likely impact on the Singapore economy of quantitative easing and low interest rates in the US and the UK. [15]
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2012 A-level Macroeconomics Qn 5. During 2009 the Bank of England engaged in what is known as ‘quantitative easing; by pumping more than $200Billion into the economy. Record low levels of interest rates have also been maintained within the UK economy. Quantitative easing and low interest rates were also adopted by the US. (a) Explain why exchange rates rather than interest rates are the preferred choice as the instrument of monetary policy in Singapore. [10] (b) Discuss the likely impact on the Singapore economy of quantitative easing and low interest rates in the US and the UK. [15]

a) Explain why exchange rates rather than interest rates are the preferred choice as the instrument of monetary policy in Singapore.

Keywords: Explain, exchange rates, interest rates, preferred choice, monetary policy, Singapore

Singapore: perfect example of a small and open economy with perfect capital mobility.

More importantly, we are dependent on trade which favours using fixed or managed exchange rate policy.

Other benefits of having a managed-float exchange rate policy

b) Discuss the likely impact on the Singapore economy of quantitative easing and low interest rates in the US and the UK

What is your stand? (remember there are usually many possible lines of argument) ***FYI: For this discussion I am going to use the model of a small and open economy, with managed exchange rates, no restriction on capital mobility together with an underlying Keynesian framework for aggregate demand and supply analysis. (Aligned with A-level Syllabus)***

Keywords: likely impact, Singapore economy, quantitative easing, low interest rates in US and UK.