Two Important Macroeconomic Misconceptions to Avoid in Your Essays

1) Stronger Currency = Always Good

Back in August 2015, the RM (Malaysia’s Ringgit) weakened to such a point that 1 SGD equalled around 3RM. Upon hearing the news, Singaporeans flocked to the money changers and exchanged large amounts of Singapore dollars to Ringgit. It was worth it, especially for frequent travellers to Malaysia, who could keep reserves of the Ringgit at home for future use. Singaporeans were benefitting from this, or so it seems. While we rushed to Malaysia to buy daily necessities or even to get haircuts to take advantage of the weaker Ringgit, businesses at home were taking a hit.

Simply put, a stronger currency may not always be good for a country, as it makes its goods and services more expensive compared to foreign goods and services. If the currency continues to strengthen, this may lead to sales and revenue being adversely affected, with recession as a potential outcome. 

2) Saving = Always Good

We like to save. It helps us cope with emergencies which require money, or allows us to make a big expenditure in the future, such as housing. It is thought to be a virtue, so much so it is considered ingrained into the Asian culture. 

But is it all good? While saving is thought to bring about benefits for us, it may not be entirely so for the economy. For the economy to grow, people, or consumers, must spend. They must demand for the goods and services that the firms produce, and in turn, the firms would expand and hire more workers.

This leads us to the paradox of saving. If everyone only saved, then ironically, firms might need to cut down on production. Fewer of us would be hired, and fewer of us would be left with any income to save at all. In fact, we could be saving our way to unemployment.  

Desmond is an Economics tutor at AfterSkool. He graduated from Singapore Management University (SMU) with a MSc in Financial Economics, obtaining distinctions in Macroeconomics. At AfterSkool, Desmond focuses on breaking down Economics concepts into manageable portions, and refining exam answering techniques. His students have scored distinctions in the ‘A’ Levels and IB examinations. To enquire about AfterSkool’s Economics programme, please fill in our enquiry form.