Learn at Home Exercise Ch 22.

1C 2020-21 Budget

B
Form 5 ____ Brian Wong
Name _____________________________ ( 21 ) 25
Revisit p. 60 – 79 of Macroeconomics 2 and answer the following questions. Students
are required to present their answer in essay form. Criteria for marking will include
the use of sources and economic theories, relevant content, logical presentation and
clarity of expression.

Source A

(2020-21 Budget Highlight)

Source B
In answering a clamor by political parties for greater relief to the people,
Paul Chan says Hong Kong permanent residents will be handed
HK$10,000. He hopes this will encourage and boost local consumption.
“This measure, which involves an expenditure of about HK$71 billion, is
expected to benefit about seven million people,” he says.
Chan says this is an “exceptional measure taken in light of the current
unique circumstances and will not, therefore, impose a burden on our
long-term fiscal position.” (The Standard 26 Feb 2020)

Source C
HKFP estimates that HK$10,000 will buy you:
• A month of rent for a 200 square-foot loft apartment in Mong Kok,
according to spacious.hk.
• Two low-season return trips from Hong Kong to London on direct
flights with Economy seats, according to agoda.com.
• One iPhone 11 with HK$4,000 left over.

1
Learn at Home Exercise Ch 22.1C 2020-21 Budget

• 14 months of gym membership.

• 496 Big Macs from McDonalds.
• 250 cups of regular coffee.
• 270 packs of toilet rolls – 10-packs.
• 200 packs of rice weighing 8 kilograms each.
By late February, as supply situation eased a little, one would still be able
to purchase only 60 boxes of surgical masks with the cash handout.
Before the coronavirus crisis, HK$10,000 would have purchased 170
boxes. (HKFP 3 Mar 2020)

Source D
HKFP estimates that the cost of Paul Chan’s one-off payout would be
approximately equal to:
• a year’s recurrent funding for the Hospital Authority during 2020-21.
• 470 years of HKDSE examination fees.
• 38 months of rent for lower-income tenants in public housing.
• three times the annual estimated expenditure of the University Grant
Committee.
• three times the annual HK$25.8 billion funding for the police force.
• 14 times the annual salary budget for Fire Services Department personnel.
• 71 times the annual estimated expenditure of public broadcaster RTHK.
• 10 times the annual financial assistance offered to working families and
students.
• 86 per cent of the estimated recurrent expenditure for social welfare
services. (HKFP 3 Mar 2020)

Source E
On Thursday, a few of them called a radio show Chan appeared on, to air
complaints and grievances.
“I wake up at 5am every day and come back home at 7pm. I work very
hard serving Hong Kong,” one female caller, a recent immigrant, said. “Why
do we get no benefits at all? I want to ask the minister: does the
government discriminate against new immigrants?”
Chan replied that if the government included everyone living in Hong Kong,
then domestic helpers, foreign students and short-term workers would be
“inappropriately” included. And if permanent residents were included
along with specified other groups, he said, the government might face
legal challenges.

2
Learn at Home Exercise Ch 22.1C 2020-21 Budget

Two other callers believed Hong Kong residents who have emigrated
should be excluded from the handout, to save money.
“The handout is unfair. Why don’t you set criteria and only those who lived
in Hong Kong for more than eight months of last year are entitled to the
HK$10,000?” one of the two callers said.
“We can get it done by setting some conditions … but the whole process
would be longer and more complicated,” Chan said. “The longer
administration process would prolong the time for money to reach the
hands of the public, which would affect our goal of stimulating the
economy.” (SCMP 27 Feb 2020)

1. Define disposable income and how the cash payout “encourage and boost local
consumption”? (5 marks)
Disposable income is the income of people after paying for tax. They can spend it
_____________________________________________________________________

as consumption or put it as saving. Yd=Y-T+Tr. The $10 000 cash payout distributed
_____________________________________________________________________
by the government was categorized as a disposable income as no tax will be collected
_____________________________________________________________________
from the giveaway, hence the disposable income of household increase. By having more
_____________________________________________________________________
disposal income, people can use the cash payout for their own purposes, such
_____________________________________________________________________
consumption expenditure for goods and services. Source C pointed out some examples
_____________________________________________________________________
such as gym membership, coffee and rice.
_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

2. “ ’This is a justifiable and effective measure,’ Lam said. ‘For some people, the
cash payout will help to make ends meet in their hour of need. It will also
encourage local consumption and inject some much-needed impetus into the
economy.’ “ (The Standard 26 Feb 2020) Do you think the cash payout is effective
in boosting the economy in terms of economic growth? Explain without using
diagram. (8 marks)
I think it is effective in boosting the economy in terms of economic growth. Since the
_____________________________________________________________________
$1000 cash payment is an expansionary fiscal policy, the disposal income of
_____________________________________________________________________
household will rise when the government raises the transfer payments ($10000 cash payout)
_____________________________________________________________________
3
Learn at Home Exercise Ch 22.1C 2020-21 Budget

to the public. Therefore, with this action being taken people's willingness to comsume normal
_____________________________________________________________________

goods will increase, leads to an increase in private consumption expenditure. As a result, there
_____________________________________________________________________

will be a net increase in aggregate demand. In the short run, both aggregate outputs and
_____________________________________________________________________
price level will rise, implying an increase in GDP.
_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________
4
Learn at Home Exercise Ch 22.1C 2020-21 Budget

3. With reference to the above sources and your own knowledge in economics,
analyse the effects of the $10 000 cash payout on Hong Kong’s:
• Unemployment;
• equity; and
• long term fiscal position (12 marks)
Regarding unemployment, the $10000 payout ease the unemployment problem in
_____________________________________________________________________
Hong Kong. With the extra $10000, citizens could use that amount of money to invest in the
_____________________________________________________________________
future, to equip themselves with new skills, such as attending courses of computer
_____________________________________________________________________
science, to allow them to earn a spot in a job. As people equip themselves with more
_____________________________________________________________________
more skills, citizens could apply for more jobs, which would lower the unemployment
_____________________________________________________________________
rate. However, under certain circumstances, like the Coronavirus going on in Hong Kong, with
_____________________________________________________________________
a limited amount of money, and the fear of leaving home to equip themselves, the
_____________________________________________________________________
problem of unemployment still exist.
_____________________________________________________________________

_____________________________________________________________________
Secondly, concerning equity. The $10,000 cash payout can equalize income. Although
_____________________________________________________________________
HK$10,000 is given to all Hong Kong permanent residents aged 18 or above (Source A),
_____________________________________________________________________
the percentage increase in income for low-income groups is larger than the percentage
_____________________________________________________________________
increase in income for high-income groups. Thus, the income gap between the high-
_____________________________________________________________________
income group and the low-income group is reduced, income inequality is reduced, and equity
_____________________________________________________________________
is improved.
_____________________________________________________________________

_____________________________________________________________________
Lastly, it will not bring negative effect on long term fiscal position. According to Source
_____________________________________________________________________
B, Chan mentioned that this policy was an "exceptional measure taken in light of the
_____________________________________________________________________
current unique circumstances". This symbolized this policy would not be a long-term
_____________________________________________________________________
policy and categorized as recurrent expenditure, instead of capital expenditure. In the long
_____________________________________________________________________
term, HKSAR public expenditure will not affect adversely due to this one-time relief measure.
_____________________________________________________________________
Instead, it can improve stabilize HKSAR long term fiscal position. With the effect of
_____________________________________________________________________

5
Learn at Home Exercise Ch 22.1C 2020-21 Budget

relief measure, it can increase local economic activities, hence minimize the chance
_____________________________________________________________________

of business close down and laid off of workers. Hence, it will be easier for the society
_____________________________________________________________________

to recover the economic environment after the current social situation as a political
_____________________________________________________________________

movement, Wuhan virus and recession of the global economy.

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________
6
Learn at Home Exercise Ch 22.1C 2020-21 Budget