GDP is the measurement of the market value of all the productions, services and goods provided in a country within a given period of time, rather a quarter or a year. It significantly reflects the economics activities in a country. Generally, consider the think of an increase in GDP as good. From the above diagram, it states the GDP growth of the US and Hong Kong for the past 30 years (1986-2016).
From the above diagram, both lines show similar upsurge and drop in close period of time, since 1983, Hong Kong had the link on the currency board system which linking HKD to USD at $1 to $7.8 which allowed Hong Kong to maintain its stability in currency rate. (HKGOV, 2008)
The gross domestic product information in Hong Kong demonstrated that the gross domestic product in the mid-1980s demonstrated the excellent period of modern generation in Hong Kong. Be that as it may, there was a checked decrease in the last gross domestic product. From the gross domestic product of 13.398% of every 1987 to the decrease of 2.277% out of 1989, it dropped by over 10% , Believed to be identified with the movement of plants to the Mainland in the late 1980s. Driven by the development of Hong Kong in the Mainland, the re-export trade has risen sharply, the financial services industry has taken the opportunity to develop and Hong Kong has transformed itself from an industrial one into a financial centre, a trading centre, a shipping centre, a tourist shopping mall, and so on.
The Hong Kong economy continued to grow a moderate pace from 1986 to 1997 in an yearly average growth at 14%, a slightly drop in 1995 due to the tightening monetary policy by the US Federal Reserve Districts. The sovereignty of Hong Kong was handover to China in 1997; in the meantime, Asian was experiencing a huge financial crisis, which hit hardly to the Hong Kong’s economy including the stock market, property market and brought Hong Kong into a recession period. In fact, the Asians Financial Crisis has strengthen the bond between Hong Kong and the People Republic of China (PRC), as China wasn’t suffered as bad as Hong Kong during 1997, and after the handover, the commercial and financial activities between Hong Kong and China has significantly increased, which allow more economics activities in both areas and created more employments, Hong Kong economics has subsequently rebounded. Besides, the rapid economic development in Hong Kong and mainland China, both economics maintain a wide range of highly productive economic connections while operating in a completely independent economic system under the model of “one country, two systems”. (HKGOV, 2008) On 1 July 1997, the day of Hong Kong’s return, the China Government handed over the land fund of HK $ 197.1 billion to the SAR government. This greatly enhanced Hong Kong’s foreign exchange ability and fiscal capitals. The SAR Government can spend hundreds of billions of Hong Kong dollars to interfere in the stock market and the futures index. The market has successfully repulsed international speculators. (Fenby, 2012) The US GDP is shown to be steadier for the past 30 years, as the US is a well-developed country for years and it dominates the world market including, which simply means if the US economy bowed the whole world’s economics won’t stay away from it.
In 1980s, the Japan’s exchange shortage was winning around, Japanese items were cherished everywhere throughout the world. Accordingly, businesses in the United States, for example, the car business endured a deficiency in trade volume because of Japan’s Japanese vehicles (substituting products relations) Japan has put such a great amount in the United States that in the late to come Japan’s monetary air pocket has influenced Japanese speculators in the United States to pull back their capital. In the second 50% of the 1980s Japan was activated by the Japanese stock and land bubble, setting off the economy the retreat, the subsidence has been influencing until the 90’s.
A significant dropped on the growth of the US GDP is recorded in year 2008-2010, it mainly caused by different factors including; low interest rate, negligent government policy and major in the troublesome of the housing market and numerous banks went bankrupt in that period. It became a great challenge to the US Economics, as well as government budget was facing discrepancy.
The US government spent over 700 billion USD to stabilize the financial system by purchasing the financial assets in the market to control the long-term interest rate and escalate money supply.
After the United States President Clinton took office in the 1990s, he emphasized the development of the science and technology industry, the financial support and tax concessions for the high-tech industries, and played a huge role in promoting the development of high-tech industries. The formation of high-tech development has given the U.S. government a lot of productivity. The explosion of technology has pushed the productivity of all manufacturing industries in the United States up and the costs down. Technological progress to promote the development of science and technology indirectly led to GDP rise, from a negative growth of -0.074 in 1991 to positive growth 3.555% in 1992, while Clinton’s assumption of office was stable in the 1990s. The Deficit Reduction Act, signed by Clinton to reduce fiscal expenditure, while reducing fiscal expenditure, while increasing investment in infrastructure based on transportation and communications, has created a favourable investment environment for private capital investment, The government has also stepped up its investment in education and technology to promote economic restructuring, with the government putting the improvement of the technological competitiveness of the United States in the daily routine of the government and issuing a series of measures such as increasing funding for scientific and technological research and development.
From the record shows on the table the recession is still with the US after a decade, the recovery wasn’t performing well, although the US economics has risen after 2010, but it rose slowly comparing to Hong Kong.
According to the chart of USA unemployment rate, from the year of 2008 to the 2010, an increase from 5% up to 9.8 % was shown, which reflected the consequences from the economic recession in 2008 to 2010 leaded to Cyclical Unemployment. The U.S constantly ascending from US$ 4.87 trillion to 18.624 trillion, likewise, full work rate is around 5.5% for the United States, the most elevated joblessness rate is 9.9% out of 2009. Since there was an incredible subsidence in the United States from the finish of 2007 to centre of 2009, this retreat period was caused by lodging bubble. Hence, the GDP development lull in these 3 years. In addition, the joblessness rate chart demonstrates that joblessness rate begins to increment since 2007 until 2009. Also, 2007’s joblessness rate is 5% and it continually ascending to 9.9% out of 2009. After the 2008 financial crisis, firstly U.S. government implemented the Quantitative Easing monetary policy without any precedent to prevent the U.S. economy from entering the “Great Depression”, and that policy can increase money supply, consumers can spend more ,the other of investors can also spend more money to stimulate the economy, reduce the unemployment rate and used rate cut to stimulate the aggregate expenditure. The positive impact of this (QE) policy is worked, kept interest rates low for firms , households and saved the US economy from a much more severe downturn problem, even another Great Depression.(BBC News,2018). Until to 2014,the unemployment rate until 2014 is beginning improve ,drop to (6.6%),after several years have obviously decreased.
Keeping in mind the end goal to control the U.S unemployment rate in 2009, the U.S government may utilize the financial approach to decrease the unemployment rate. We take 2009 for instance; the U.S government gave a low-loan fee to the economy, so as to draw in more ventures. Since the lower loan cost could energize the speculators acquiring cash from banks to make a venture amid a financial retreat. At the point when the financial specialists will contribute amid the recessionary period, there would be a less jobless individual in the economy for the most part.
As should have been obvious the consequence of this money related strategy that the U.S government utilized. Therefore, the unemployment rate is ceaselessly declining to begin from the purpose of 9.9% from 2009 to 2016.
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. According to the diagram, this shows that the GDP in Hong Kong is increasing in general. Meanwhile, the rate of unemployment is more fluctuating. Moreover, there are also some drops in the GDP graph over the last 30 years. Hong Kong GDP was constantly going up from 1987 to 1997. However, it was a disinflation-deflation phrase in the Hong Kong economy; this caused the inflation rate decreased in 1998. Then, the outbreak of Severe Acute Respiratory Syndrome (SARS) in 2003, SARS made the GDP decline even more. The unemployment rate in Hong Kong was fluctuating over these 30 years. We can see the three most elevated unemployment rate was in 1999, 2003 and 2009. The unemployment rate was 6.2% out of 1999, the rate expanded was for the most part about assembling, support, and enrichment, transport, and restaurants.
USA Unemployment Rate chart
Year ( 1987-2017)
USA Unemployment Rate By Year (%)
United States’ Inflation Rate from years 1987-2017
Hong Kong’s Inflation Rate from years 1987-2017
From 1987 to 2017, the inflation rate for both Hong Kong and the United States have both been chaotic but having a rise and fall in prices is normal unless a major change takes place. These two countries faced some drastic changes in prices of both goods and services, but never a hyperinflation, which may have affected the economy growth critically. However, both countries still managed to make it back to having a stable inflation rate. For instance, just around 2008, both countries faced a fall in inflation with United States experiencing a much more serious decline but both countries survived the economy crisis by 2010.
United States started off 1987 with a rough start with a continuous rise in their goods and services just until 1991 when a drastic fall in price occurred from the high rate inflation which caused the inflation rate to return back to the stable state where the changes in prices were neither rising nor falling severely. US consumer price expansion expanded to 2.2 percent year-on-year in November 2017 from 2 percent in the earlier month, as broadly anticipated. Fuel prices ascended at a quicker pace while human services and attire costs fell. From 1991 until 2008, United States dealt with stable and low changes in their inflation rate which is great for the economy for many reasons.
Although, 2008 was a dreadful year for the United States. In 30 years, late 2007 – mid 2009 was the only year U.S. faced a drastic deflation because the inflation rate dropped below 0%. This occurrence made its fame all over the world, making all of us very aware of such an extreme recession. As a matter of fact, this was considered to be the largest decline in economic activities after the Great Depression. This occurred because of the 8 trillion dollar housing bubble. During this period, the labour market in U.S. alone lost around 8 million jobs which caused a very dramatic contraction within the unemployment rate. (P.S.C.M, 2017)
Nevertheless, United States eventually coped with the Great Recession even after the rough recovery which lasted for 16 months. Unstable recovery was still shown in the following years with both inflation and recession which then ended 2017 with the ideal inflation rate at 2%.
On the other hand, Hong Kong begun with a high starting point of inflation at 5% in 1987. This inflation continued to grow until the year 1992 making it reach to 13%. This rapid inflation was caused by instantaneous economic integration with South China according to the findings made by the Business and Professionals Federation of Hong Kong. A rise in the Hong Kong’s housing market also is the cause of the high inflation. From 1992 until around 2000s, Hong Kong managed to calm back down from inflation, but made its adverse episode by over declining in its inflation rate from late 1998. It exceeded below 0% and made a severe deflation reaching until – 6%. In this case, the prices in their goods and services were clearly altered to the prices when it was high in inflation. These events took place very promptly which made it difficult for Hong Kong to cope. The deflation period lasted until 2005 and made its high peak inflation in 2008 almost similar to the United State and returned to having a deflation in 2009 which was the last deflation of Hong Kong until today’s date. High Peak of inflation rate would still occur but it was more stable than the last 20 years. (The Great Recession, 2017)
In the United States, monetary policy is used to reduce inflation. With monetary policy, the central bank introduces higher interest rates to limit consumer and investment spending. In the U.S., Fed, the economic policymaker works with expanding monetary policy. By expanding monetary policy, Fed purchases bonds which then increase the money supply. This results in bonds prices rising which reduce interest rates. The bond market shifting is equilibrium to the money market and with a higher money supply, thus the interest rate still drops which fuel up the investment. All in all, when the interest rate is low, the demand and the increase in money supply in the currency market lowers the exchange rate. This finally results in an increase in investments and net exports which closes the recessionary gap. This policy was used by Fed which proves that it is successful especially with an improvement in their inflation rates. They also undertake this policy with the goal of achieving one and not having to achieve another as the steps to reach these goals may clash.
Monetary policy is also used in Hong Kong. This is done by the HKMA which focuses on currency stability. This was executed in 2016 and shown improvements along the year with a stable market exchange rate. The method of stabilizing currency helps reduce inflation in Hong Kong because Hong Kong receives a large variety of imported goods from all around the world, and if the exchange rate is low, the inflation rises. This is because imported goods will be more expensive to buy from abroad.
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