Not to be taken away THE UNIVERSITY OF HONG KONG School of Economics & Finance 2010-2011 2nd Semester Examination

Economics: ECON0603 The Economic System of Hong Kong Dr Y.F. Luk May 18, 2011 9:30-11:30 a.m.

Answer all questions succinctly and be to the point. Each question is worth 10 points. Budget your time well. No calculator is allowed. Part A Explain whether the following statements are true, false or uncertain (note there is no point for answers without explanation):
1.

It is better to peg the Hong Kong dollar to a basket of currencies than just to the U.S. dollar.

2. The Hong Kong dollar should be pegged to the renminbi instead of the U.S. dollar as the Hong Kong economy is now more closely linked to the mainland economy.
3.

Given its economic features, there is no effective macroeconomic policy in Hong Kong.

4. Given the current features of the Hong Kong economy, a central provident fund is preferred to a pay-as-you-go social security system. 5. The labor market in Hong Kong is not particularly efficient, as witnessed by the high and persistent unemployment rate since the Asian financial crisis. Part B Short questions:
6.

Why did the forward exchange value of the Hong Kong dollar (vis--vis the U.S. dollar) fall during the Asian financial crisis? What are exchange fund bills and notes and why were they introduced? Do you agree that the rising Gini coefficient in Hong Kong over the past decades should be a concern of government economic policy and why? Explain what Closer Economic Partnership Arrangement is and its impacts on the Hong Kong economy. Describe briefly the developments of Hong Kongs external trade over the past two decades.

7. 8. 9. 10.

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