Finding Economics Assignment 5, fiscal policy and monetary policy.
For this assignment, you will
- Present a chart showing the growth of GDP of an economy.
- Highlight a period of recession.
- Discuss the policies implemented by the government/ Central Bank to revive the economy.
Hong Kong quarterly real GDP growth (1992 – 2017)
Fiscal policy is the primary tool the government can rely on to steer the economy out of recession in late 2000’s. Hong Kong government introduced a 110 billion HKD fiscal stimulus package in response to the global financial crisis. This includes
- Special loans to small and medium enterprises (SMEs) so that the companies can start investment projects. (I increases).
- Launching more construction projects, which also boosted the demand for labor (G increases).
- One-off income tax cut to encourage consumption. (C increases)
It is not easy for the Central Bank to increase money supply to revive the economy, because the economy has a fixed exchange rate with the USD. By increasing the money supply, the value of HKD can drop which will violate the fixed exchange rate regime.