Gross Domestic Product (GDP) is the total value of all output produced by a country including final goods and services produced in a period of time normally measured in a quarter or a year. Generally, a higher GDP results in a better economic performance. the following line chart shows the year-on-year percentage change on GDP for both Hong Kong and the US economies from 1986 to 2016.
From the above graph, the two lines demonstrate comparable upsurge and drop in close timeframe, since 1983, Hong Kong had the connection on the cash load up framework which connecting HKD to USD at $1 to $7.8 which permitted Hong Kong to keep up its security in money rate.
The Hong Kong economy kept on growing a direct pace from 1986 to 1997 out of a yearly normal development at 14%, a marginally drop in 1995 because of the fixing financial arrangement by the US Federal Reserve Districts. The sway of Hong Kong was handover to China in 1997, meanwhile, Asian was encountering a colossal money related emergency, which hit scarcely to the Hong Kong’s economy including the stock exchange, property showcase and brought Hong Kong into a retreat period. Truth be told, the Asians Financial Crisis has fortify the bond between Hong Kong and the People Republic of China (PRC), as China wasn’t endured as awful as Hong Kong amid 1997, and after the handover, the business and budgetary exercises between Hong Kong and China has essentially expanded, which permit more financial aspects exercises in the two zones and made more occupations, Hong Kong financial aspects has hence bounced back. In addition, the fast monetary advancement in Hong Kong and terrain China, both financial aspects keep up an extensive variety of exceptionally profitable financial associations while working in a totally autonomous financial framework under the model of “one nation, two frameworks”. On 1 July 1997, the day of Hong Kong’s arrival, the China Government gave over the land reserve of HK $ 197.1 billion to the SAR government. This extraordinarily upgraded Hong Kong’s outside trade capacity and monetary capitals. The SAR Government can support through billions of Hong Kong dollars to meddle in the share trading system and the prospects list. The market has effectively rebuffed universal theorists.
The year 2003 was the year when SARS softened out up Hong Kong while individuals feared being tainted with this hopeless sickness. General society abstained from going out and influenced the important retail markets and all enterprises. Deadened monetary exercises halted. The 2007 budgetary torrent was additionally a vital noteworthy minute in the decay of gross domestic product when many concerned subjects purchased the Lehman little bank and the chapter 11 of Lehman Brothers Bank gave Hong Kong individuals a dread of a monetary air pocket and speculators freeze offering stocks environment. The downturn in money related markets has influenced the four noteworthy ventures in Hong Kong, causing a chain-impact financial downturn.
In 2003, the SARS government delivered CEPA to Hong Kong in June. Since then, the CEPA Supplementary Agreement has been introduced year by year and the service trade liberalization has been gradually realized. SARS hit Hong Kong’s tourism industry. In July 2003, the Central Government launched the “Individual Visit Plan” policy, covering as many as 49 cities and 250 million mainland residents. Hong Kong’s economy is slowly climbing up.
The US GDP is appeared to be steadier for as long as 30 years, as the US is an all around created nation for a considerable length of time and it commands the world market including, which essentially implies if the US economy bowed the entire world’s financial aspects won’t avoid it.
In the early 1980s, it was believed that Japan’s trade deficit was prevailing at that time. At that time, Japanese products were loved all over the world. As a result, major industries in the United States such as the automobile industry suffered a deficit in export volume due to Japan’s Japanese vehicles (substituting goods relations) Japan has invested so much in the United States that in the very late to come Japan’s economic bubble has affected Japanese investors in the United States to withdraw their capital. In the second half of the 1980s Japan was triggered by the Japanese stock and real estate bubble, triggering the economy The recession, the recession has been affecting until the 90’s.
A critical dropped on the development of the US GDP is recorded in year 2008-2010, it mostly caused by various elements including; low loan fee, careless government arrangement and major in the troublesome of the lodging market and various banks went bankrupt in that period. It turned into an extraordinary test to the US Economics, and government spending plan was confronting error.
Since the United States President Clinton inaugural in the 1990s, he underlined the advancement of the science and innovation industry, the money related help and expense concessions for the cutting edge enterprises, and assumed an immense part in advancing the improvement of cutting edge businesses. The arrangement of cutting edge advancement has given the U.S. government a considerable measure of profitability. The blast of innovation has driven the efficiency of all assembling enterprises in the United States up and the expenses down. Mechanical advance to advance the improvement of science and innovation by implication prompted gross domestic product rise. From negative development of – 0.074 out of 1991 to 3.555% out of 1992, while Clinton’s supposition of office was steady in the 1990s. The Deficit Reduction Act, marked by Clinton to decrease monetary use, while lessening financial use, while expanding interest in foundation in view of transportation and interchanges, has made an ideal speculation condition for private capital venture, The legislature has likewise ventured up its interest in training and innovation to advance monetary rebuilding, with the administration putting the change of the mechanical intensity of the United States in the every day routine of the administration and issuing a progression of measures, for example, expanding subsidizing for logical and innovative work.
The US government spent more than 700 billion USD to settle the monetary framework by buying the budgetary resources in the market to control the long haul loan cost and heighten cash supply.
For the Hong Kong (HK) economy, here are two 30-year Hong Kong GDP and unemployment rate diagrams from 1987 to 2016. Additionally, GDP means gross domestic product and unemployment rate is the percentage of unemployed people within the labour force.
The unemployment rate of Hong Kong was fluctuating over these 30 years. We can see the three highest unemployment rate was in 1999, 2003 and 2009. The unemployment rate was 6.2% in 1999; the rate increased was mostly about manufacturing, maintenance and decoration, transport and restaurants.
Moreover, the unemployment rate in 2003 is the highest which is 7.9%. One of the important reasons is because of the outbreak of Severe Acute Respiratory Syndrome (SARS) in 2003; SARS brings negative influence to Hong Kong’s economy, therefore the demand of labour market declined. The percentage was 5.3% in 2009 caused by the financial crisis happened at the end of 2008. About the unemployment rate, the unemployment rate of Hong Kong was fluctuating over these 30 years. We can see the three highest unemployment rate was in 1999, 2003 and 2009. The unemployment rate was 6.2% in 1999; the rate increased was mostly about manufacturing, maintenance and decoration, transport and restaurants. Moreover, the unemployment rate in 2003 is the highest which is 7.9%. One of the important reasons is because of the outbreak of Severe Acute Respiratory Syndrome (SARS) in 2003, SARS brings negative influence to Hong Kong’s economy, therefore the demand of labour market declined. The percentage was 5.3% in 2009 caused by the financial crisis happened at the end of 2008.
As indicated by the diagram of USA unemployment rate, from the time of 2008 to 2010, an expansion from 5% up to 9.8 % was appeared, which mirrored the results from the recession period in 2008 to 2010 leaded to Cyclical Unemployment.
For the United States (U.S) economy, these two diagrams above represented the United States in the U.S continuously rising from US$ 4.87 trillion to 18.624 trillion. Also, full employment rate is about 5.5% for the United States; the highest unemployment rate is 9.9% in 2009. Since there was a great recession in the United States from the end of 2007 to middle of 2009, this recession period was caused by housing bubble. Moreover, the unemployment rate diagram shows that unemployment rate starts to increase since 2007 until 2009. Additionally, 2007’s unemployment rate is 5% and it constantly rising to 9.9% in 2009.
As a result, we consider GDP and unemployment rate are interrelated, especially in this case, during recession period the impact would be more significant.
We would like to discuss a specific policy to reduce unemployment rate for Hong Kong and the United States economies.
First, in order to solve the issue of high unemployment rate in Hong Kong, the HK government could increase the government expenditure. The government decided to spend more money in order to reduce the Hong Kong unemployment rate. It is because the government expenditure increased to help the private sectors, then the incentive for them to invest is higher and decrease the unemployment rate. This is how the Hong Kong government increase their expenditure helps the economy in the short term.
Second, in order to control the U.S unemployment rate in 2009, the U.S government might use the monetary policy to reduce the unemployment rate. We take 2009 as an example; the U.S government provided a low interest rate for the economy, in order to attract more investments. Since, the lower interest rate could encourage the investors borrowing money from banks to make investment during economic recession. When the investors are willing to invest during recessionary period, there would be less unemployed person in the economy usually.
As the result of this monetary policy that the U.S government used. As a result, the unemployment rate is continuously declining starting from the point of 9.9% in 2009 to 2016. Therefore, we would consider this policy is successful to reduce the rate of unemployment in this economy.
After the 2008 recession, right off the bat U.S. government actualized the Quantitative Easing money related approach with no point of reference to keep the U.S. economy from entering the “Incomparable Depression”, and that arrangement can expand cash supply, shoppers can spend increasingly, the other of financial specialists can likewise spend more cash to fortify the economy, diminish the joblessness rate and utilized rate slice to empower the total use. The positive effect of this (QE) strategy is worked, kept financing costs low for firms, families and spared the US economy from a considerably more serious downturn issue, significantly another Great Depression.(BBC News,2018). Up to 2014, the joblessness rate until the point that 2014 is starting to enhance, drop to (6.6%), following quite a while have clearly diminished.
Consumer prices in Hong Kong increased 1.6 percent year-on-year in November of 2017, following a 1.5 percent rise in the previous month. Prices went up at a faster pace for housing, transport and miscellaneous goods. A Government spokesman said that looking ahead, inflation pressure should be limited in the near term, given the prevailing mild external price pressure and moderate rises in local costs. Inflation Rate in Hong Kong averaged 4.40 percent from 1981 until 2017, reaching an all-time high of 16 percent in October of 1981 and a record low of -6.10 percent in August of 1999. (Trading Economics, 2018)
US consumer price inflation increased to 2.2 percent year-on-year in November 2017 from 2 percent in the previous month, as widely expected. Gasoline prices rose at a faster pace while healthcare and apparel costs fell. Still, core inflation rate, which excludes prices of food and energy, fell to 1.7 percent from 1.8 percent in October, missing market expectations of 1.8 percent. The Fed is expected to raise interest rates later in the day despite a split among policymakers on the outlook for inflation. Inflation Rate in the United States averaged 3.28 percent from 1914 until 2017, reaching an all-time high of 23.70 percent in June of 1920 and a record low of -15.80 percent in June of 1921. (Trading Economics, 2018) In the United States, money related strategy is utilized to lessen expansion. With money related strategy, the national bank acquaints higher financing costs by constraining consumer and venture spending. In the U.S., Fed, the financial policymaker works with a growing money related approach. By extending fiscal arrangement, Fed buys securities which at that point increment the cash supply. This outcome in securities prices rising which lessen loan costs. The security showcase moving balances to the currency advertise and with a higher cash supply, therefore the loan fee still drops which fuel up the speculation. All things considered, when the loan fee is low, the request and the expansion in cash supply in the money advertise brings down the conversion standard. This at long last outcomes in an expansion in ventures and net fares which shuts the recessionary hole.
Inflation as shown in a diagram is measured by Consumer Price Index (CPI). The general price in Hong Kong and US started to drop in 2007 and when the CPI declined, it indicates that the economy is experiencing deflation. Deflation usually happens in and after economic crisis like what happened last 2007-2008. When an economy experiences a recession or depression, output slows as per demand for consumption and investment falls. This leads to decline asset prices as producers are forced to liquidate inventories that people no longer want to buy. Consumers and investors begin holding onto liquid money reserves to moderate against further financial loss. As more money is saved, less money is spent, further decreasing aggregate demand. At this point, people’s expectation to future inflation is low and they begin to store money. As a production slows down, companies reduce workforce which cause to increase unemployment rate.
The crisis way back in year 2008 started in U.S. financial sector (the subprime mortgage market) and circulated to the entire financial system through mortgage-backed securities and highly controlled debt structures; so, the crisis infected the global economy through the international financial networks.
Fiscal policy may help to control inflation in Hong Kong. The economy is experiencing both low unemployment and low inflation so it is appropriate to reduce government spending. Good fiscal discipline dictates that government spending be different to the business cycles.
However, monetary policy can be adopted in US. It is well accepted that monetary policy needs in US. Because monetary policy affects the economy with a lag, it was clear that rates would need to start moving up from zero before monetary policy goals had been fully met.
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