Economic

Question 1

“The establishment of the ASEAN Economic Community (AEC) in 2015 is a major milestone in the regional economic integration agenda in ASEAN, offering opportunities in the form of a huge market of US$2.6 trillion and over 622 million people. In 2014, AEC was collectively the third largest economy in Asia and the seventh largest in the world.
The AEC Blueprint 2025 is aimed towards achieving the vision of having an AEC by 2025 that is highly integrated and cohesive; competitive, innovative and dynamic; with enhanced connectivity and sectoral cooperation; and a more resilient, inclusive, and people-oriented, people-centred community, integrated with the global economy.

Source: www.asean.org
ASEAN country members are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.

(a) Discuss how it is possible that each member country could benefit from this regional economic cooperation through trade.
(10 marks)
(b) Would you agree that it’s more possible to have negative effects of the partnership to the member countries like Myanmar and Laos than the positive benefits? Discuss.
(5 marks)
Question 2
Examine the open economy of country Beta without the government sector. The aggregate spending with the various components is as follows:
C = 5,400 + 0.8Y
M = 1,800 + 0.075Y
I = 2,400
X = 1,700
Note: C = consumption, Y = national income, M = import, I = investment and X = export.
(a) Calculate the trade balance and the savings at the equilibrium level of national income.
(5 marks)
(b) Suppose export decreases by 200 and investment increases by 400 at the same time. Compare, compute and discuss the new equilibrium level of national income and the new trade balance at this equilibrium level of national income.
(5 marks)