China 's Growth Rate And Its Effect On The Economy

1130 Words Mar 31st, 2016 5 Pages
a.
China’s growth rate is plummeting in recent years and is showing signs of falling further in coming years. Governments effort such as monetary stimulus, stock market bubble and bond market bubble has failed to stabilize economy, making only small and temporary effects. Authorities are trying to boost investment demand through monetary policy but industries already are in state of overcapacity; a result of force saving policies; and therefore real effect is showing as weakness in currency exchange. Commodity market is collapsing in greater rate each year and situation seems like Chinese economy might be moving toward depression.
Economists think that government should formulate extensive plan rather than small measures of stabilizing the economy to recover from the situation. Their suggestions include loose control of economy, enforced capacity reduction and decrease in share of government spending in GDP, which is 50%, and encourage private investments to balance the economy. Shifting income to household sector by diminishing taxes on consumption and income as well as decline in contribution on social welfare fund will also help.

b. Similar to price of goods, services, commodities; currency exchange rates are also determined by market demand and supply. The law of demand and supply dictates that high demand causes high price and high supply causes low price (Gale, 1955). In another word if supply is scarce then price should rise and when supply is profuse then price…
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