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Macro & Micro economics - Essay Example

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China is one of the fastest growing economies in the world. Being the second-largest economy, China has shown tremendous growth in the last three decades. According to the estimate of 2012, China’s GDP is US $12.38 trillion (CIA, 2013). …
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Macro & Micro economics
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Macro & Micro economics

Download file to see previous pages... In the last quarter of 2012, growth rate in the economy was estimated to be 7.9% (BBC, 2013). However, immediately in the first three months of the current year (2013) the growth rate dropped notably. The government of China noticed this fluctuation early in 2013 and decided to take expansionary policies to pull up the growth rate. This paper aims at studying an article titled “China to continue ‘proactive fiscal, prudent monetary’ policy” written by Siwu and Zhi and published in Xinhuanet on March 5 2013. The article presents a report on the present growth rate of China and discusses the government’s policy prescription with regard to this growth situation in the country. At present annual growth rate of the country is 7.7% and the central bank has taken expansionary monetary policy to boost up economic activities in the country (BBC, 2013). The fiscal policies adopted by the government have also been discussed in the article. The discussion presented in this paper identifies the major causes that have affected the growth rate of the Chinese economy and comments on the policy adaptations of the government as discussed in the news article. The impact faced by the Chinese society on account of this economic slowdown has also received light in the scope of this discussion, alongside the discussion on the aggregate demand and supply in the economy. Aggregate demand in the Chinese economy has declined as a result of this declining growth rate. The government has focused on improving domestic demand conditions in order to boost up the economy. Discussion on the economic problem The growth momentum in the country has been showing a lack of vigour since the beginning of 2013. The measures of various economic variables in the country are indicative of a low performance level in the economy, which implies that there is no strong point of evidence that might show that the economy has any prospect for recovering soon. In 2013, estimate of the growth rate of the economy has been 7.7% from January to March, while economists had forecasted that growth rates would reach 8%. In response to this economic situation the government of China has declared that it would sustain the “proactive fiscal policy and a prudent monetary policy” (Siwu and Zhi, 2013) throughout the year in 2013. Proactive monetary policies have been maintained by the Chinese government since the 2011, with the aim of bringing stability in the economy, to make the economic structure flexible for future improvements and more forward-looking and target-oriented. This would ensure steady economic growth. While bringing economic growth the government aims at keeping the price level in the economy stable and guard against the occurrence of any regional or systemic financial risk. The government has vowed to guide the financial institutions, to make them operate prudently, oversee the financial activities of the institutions and take account of the risks associated with off-balance sheet activities, so as to make the financial sector's more sustainable and capable of supporting long term economic development. Causes of the problem The article by Siwu and Zhi (2013) reflects that the government of China has been actively making policy prescriptions that are aimed at improving the economic conditions of the country. Further research on this issue reveals that growth of the Chinese economy has been highly dependent on its export sector. The major markets for Chinese exports are the USA and the European countries. The country mainly exports, garments, toys, accessories, other plastic products, machinery, transport equipments, rubber, metallurgical products, textile materials, chemical products, refined oil and crude oil, as well as food items (Peopledaily, 2001). China follows ...Download file to see next pagesRead More
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