Question

The latest figures show that Thailand’s economy grew by 3.5% in the second quarter, putting it on track for 3–3.5% growth for the whole of 2016. Thailand has managed to boost its growth after several quarters of disappointing performance by increasing public sector investment in several large infrastructure projects, including roads, railways and airports. These projects will run over the next 3 to 5 years and are worth several hundred billion baht, Thailand’s currency. It is hoped that this public sector investment will encourage the private sector to increase their investment spending.

In addition to increased investment, the Thai economy’s growth is being boosted by recovering private consumption due to increases in farm prices, which are crucial to household purchasing power, as well as a strong tourism sector.

Regarding the export sector, which remains the biggest engine of growth, the outlook is still uncertain but the negative impact from China’s economic slowdown appears to have stabilized with a Chinese growth rate of around 6.6% per annum.

Refer to the source material before answering the question

1. Calculate the level of aggregate demand in Thailand in 2014. [1]

2. In which category of expenditure would the various infrastructure projects be placed? [1]

3. Explain how a fall in the rate of interest would be likely to affect expenditure on

1. consumption [2]

2. exports. [2]

Answer 1

(a) Given,

Household consumption=243

Government consumption=69

Capital goods=98

Net exports= exports - imports

=280 - 253

=27

So, level of aggregate demand in Thailand in 2014 = Household consumption + government consumption + capital goods + Net exports

= 243+69+98+27

= US $ 437 billion

(b) In government consumption

(c) (i) The fall in interest rates gives the consumers more amount to spend. The lesser the interest rate, the more the people want to borrow money to spend. This will rise the consumer spending and increase the expenditure.

(ii) Exports:- when there is cut in interest rates, the value of foreign currency decreases which means the domestic goods produced in that country are cheaper and subsequently exports rises and imports will decrease. Hence with the fall in imports rates, exchange rates also falls which increases exports.