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14.
(d) The Automatic Corrective Mechanism
Not that there is any need for the Government
to intervene to regulate the economy.
Provided the rate
of growth of public expenditure is kept more or less in
step with the rate of growth of overall demand, the economy
will automatically adjust so as to maintain both internal
and external equilibrium. This is a consequence of the
economy's heavy reliance on trade with the rest of the world,
the absence of tariffs and other restrictions on the free
movement of goods and services into and out of Hong Kong
and the existence of a competitive labour market.
15.
If aggregate demand were to grow so rapidly as
to result in an excess demand for labour in the short
term which drove up internal costs and prices, then this
would tend to increase the rate of growth of imports and
lower the rate of growth of exports (partly because of the
rise in prices and partly because the rise in money wages
would lead to some diversion of real resources away from
the export oriented industries to industries catering for
domestic consumption, small though they are in relation to
the export sector). As a result the economy would
automatically tend to deflate, thereby slowing down the rise
in internal costs and prices and the rate of
growth of imports and stimulating the production of goods
for export at more competitive prices.
16.
In addition, this process would be reinforced
by an automatic monetary effect. Neither the Government
(except to a very limited extent), nor the banks can
influence the money supply.
This is because there is
/no.....