1. Introduction
In accordance with the news released by the Hong Kong Census and Statistical
Department, she said that the overall net export in January of 2017 has decreased by
2.3% which is a significant decrease when compared to the past. Apart from that, the
imported good has a more dramatic decrease by 3.9%. It is a certain fact that the
overall net export of Hong Kong decreased which has provoked diverse range of
problems.
2. Effects on Aggregate Demand
One very crucial consequence of the decrease in net exports is that it leads to a
decrease in the aggregate demand of Hong Kong since net export is one of the
components in aggregate demand. Since there is an increase in the exported good in
Hong Kong by 1.1% in January, it leads to a decrease in amount of exported goods of
2.3% which is fairly elastic. W hen there is a decrease in the exported goods and
imported goods, net export decreases. When net exports decrease, aggregate
demands decreases which lead to a decrease in price level and aggregate output as
well. Since aggregate output is lower than potential output, it gives rise to a
deflationary gap.
3a. Effects on the Gross Domestic Production
Apart from the effect on aggregate demand, it also causes a decrease in Gross
Domestic Product. Since net exports decrease, the Gross Domestic Product also
decreases. However, such the decrease in net exports does not equally equivalent to
the decrease in the Gross Domestic Product. Its effect has also brought along with
some industries related to trading (importing and exporting), for instances, some
transport industries. They may receive fewer orders when fewer goods are exported.
As a result, less business is created locally and there is a further decrease in the
Gross Domestic Product.
3b. Limitation on the Gross Domestic Production
However, the estimated Gross Domestic Production may not always be the actual
Gross Domestic Production since there are some limitations. Citing an example, there
maybe are some unreported or even some illegal exported and imported goods
which happen locally but are not taken into account. As a result, the Gross Domestic
Production may be underestimated.
4. Recommendation
To alleviate this problem, it is suggested that expansionary fiscal policy should be
implemented. As long as the government decreases the Export Duty, then it will
encourage more goods to be exported. Net exports increase and aggregate demands
also increase which give a rise to increase in price level and aggregate output.
Therefore, deflationary gap are eliminated. Another benefit of the decrease in Export
Duty is that it can also increase the Gross Domestic Products. Once duty are
decreased, the disposable income for those industries increase, followed by an
increase in consumption, and finally cause an increase in the Gross domestic
Production since they may use the extra money to more raw materials.
5. Conclusion
By way of conclusion, the effects of the decrease in net exports on aggregate
demand and gross domestic production are discussed and possible solution is also
suggested. It is my hope that more business are encouraged and lead to a increasing
trend in the amount of net export in the coming future.
The news: Goods exports down 2.3% on March 20, 2017
URL:http://www.news.gov.hk/en/categories/finance/html/2017/03/20170320_1701
58.shtml