Question 1

In order to control the car population in Singapore, the government imposes a Certificate of Entitlement (COE) system, which is effectively a quota on the car ownership. Every month,only a small number of COEs are issued and only people with COE are allowed to registerownership of cars. Since all cars are imported, the COE is equivalent to a quota on carsimport.

(a) Explain with a suitable diagram the welfare effects of a quota on cars. Specify thegainers and the losers in the economy under the quota.(10 marks)

(b) Analyse whether there would be any difference to the economy if the government were to impose an equivalent tariff. Discuss which one would be more effective to control car population in Singapore.(5 marks)

Question 2

(a) Consider an economy operating under a flexible exchange rate system. It isencountering a recession and also having a balance of payments deficit. At the sametime it is also encountering inflationary pressure. Analyse what would be the suitablepolicies for the economy to solve these problems.(10 marks)

(b) Analyse how would your answers be different in (a) if the economy were to operate under a fixed exchange rate system instead.(10 marks)