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What will government likely do if Singapore is facing a recession?

This question is part of Exchange rate quiz
Asked by Dracofalcon, Last updated: Mar 29, 2020

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dracofalcon

Dracofalcon

Answered Sep 20, 2018

Devaluation of Singapore dollar because it can increase export revenue

Option (a) is correct because depreciation of Singapore dollar will decrease the price of export goods and make them more price competitive. Hence, this helps to increase export revenue and thus increase nominal national income. Option (b) is incorrect because appreciation of Singapore dollar will increase the price of export goods so the net export will decrease due to a decrease in export revenue. Option (c) is incorrect because depreciation of Singapore dollar will increase the amount of Singapore dollar needed to buy 1 unit of foreign currency so less foreign currency is needed to buy 1 unit of Singapore dollar. Therefore, the price of export goods will become relatively cheaper. Option (d) is incorrect because although appreciation of Singapore dollar can indeed reduce the amount of Singapore dollar needed to buy 1 unit of foreign currency, the net export will decrease, causing a decrease in nominal national income.
 

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