Reference no: EM133184479

This week, we learned about the measurements of cost and the various factors impacting exchange rates (interest rates, economic growth, inflation, confidence in the economy, and current deficit or surpluses). To prepare for this week's discussion, please evaluate this case study: Hong Kong's Free Economy: At the Crossroads? BELOW

The case discusses the challenges faced by Hong Kong, touted as the freest economy in the world, due to the interference and restrictions imposed by China. Hong Kong achieved the position of being the freest economy due to its low tariffs, high amounts of trade (FDI flows), efficient regulations, and low government intervention. Despite the difficulties during the regional and global economic slowdown, Hong Kong fared well, and it remained one of the most open, most welcoming, and freest economies in the world. Hong Kong's rule of law, together with the independent judiciary and the transparency of its legal system, reassured companies seeking to set up their businesses in the city. At the same time, Hong Kong was ranked as one of the most expensive cities in the Cost of Living survey, with the widest income inequalities in the developed world. Being a global financial and shipping center, Hong Kong's economic linkage with the mainland was most evident in the finance and trading sectors. As the Asian economy continued to grow along with China's economy, it was expected that there would be more opportunities for Hong Kong in the financial services sector, where it was well positioned as one of the largest finance hubs in the world. But, the mainland's continuing interference despite its "One Country, Two Systems" pledge, was a cause for concern for the citizens of Hong Kong. China's heavy-handedness with Hong Kong spurred tension in the city and citizens complained about the deteriorating rule of law and human rights environment. This raised several questions - in the absence of political freedom, can Hong Kong remain the freest economy in the world? Will the Hong Kong free market model with wealth disparities survive in the long run? Should Hong Kong give up its capitalist economy on which its prosperity was built?

Reflect back and address these prompts:

• Explain what the hindrances are to a free economy, and what you see are the traits to an absolute free economy.
• Do you feel that internal or external interference block an economy from truly functioning as a free economy? Explain your position.
• Share a pros and cons chart/list that illustrates Hong Kong's free economy taxation program. When making your list, consider Hong Kong's low-income taxes and high property values; can other economies adopt this strategy? In the last section, make a recommendation on whether the US economy should adopt or turn away from these strategies, and explain why.