Question

The Hong Kong government announced on February 2021 a 120 billion HKD (15.5 billion USD) stimulus in its budget to support businesses and individuals struggling from the global pandemic. a. How does this fiscal policy action affect the Hong Kong economy? Use an AA-DD diagram to illustrate the effect. (5 points) b. Assume the Hong Kong Monetary Authority (HKMA) is committed to maintain a fixed exchange rate between the Hong Kong dollar (HKD) and the U.S. dollar (USD). Use an AA-DD diagram to illustrate the effects of HKMA's action in conjunction with this fiscal expansion? (5 points)

Answer 1

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