Nobody downloaded yet

Monetary Policy in China - Essay Example

Comments (0) Cite this document
In September 2008, the Politburo, China's highest-ranking decision-making body announces a change in the monetary policy in the economy. As the country for the long time employs a tightening policy in order to combat inflation, the country takes on a reverse direction through a loosening monetary policy…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER92.7% of users find it useful
Monetary Policy in China
Read TextPreview

Extract of sample "Monetary Policy in China"

Download file to see previous pages The China's central bank, People's Bank of China reflects the decision-making body's concern and aim for the change in policy.
The article's primary economic element is the lowering of the interest rate in the economy. This lowering of the benchmark interest rate has an effect on the country's monetary policy and money supply. According to Bradsher in the article, "effective Tuesday, the People's Bank of China lowered by 0.27 percent, to 7.2 percent, the regulated benchmark rate that commercial banks may charge for one-year loans to business borrowers with strong credit histories. Rates for shorter-term loans will be generally cut even more while rates for longer-term loans will be subject to smaller adjustments, the central bank said, without providing details (September 2008)." By lowering the interest rate, the central bank aims to signal to commercial banks to lower the lending rate. By lowering the lending rate, the country aims to make funds more accessible to business borrowers.
In figure 1.1, China's benchmark rate is lowered. The interest rate aims to lower the money supply in the country. By lowering the money supply coupled with less stringent limits on lending, China's Politburo aims to "protect the country from the global economic downturn."
By loweri...
owering the money supply coupled with less stringent limits on lending, China's Politburo aims to "protect the country from the global economic downturn."
By lowering the interest rate, China aims to signal commercial banks to lower down their lending rate which makes the cost of accessing financing lower. As is shown in figure 1.2 and 1.3, lowering the interest rates lower the costs to financing, which increases the investments in an economy.
This increase in investments due to lower costs of financing that is brought by this change in monetary policy does not increase proportionately in the economy. Figure 1.4 shows the effect of the increase in investment in the economy. Because of the multiplier model, the increase in the investment is affected by a given multiplier in an economy; thus the economy rises so much more for every increase in the investment due to the lowering of interest rates as part of the monetary policy.
Figure 1.5 shows the effect of the monetary policy on the aggregate demand of the economy. Due to the increase in investments, the aggregate demand curve shifts to the right which increases the gross domestic output in the economy.
The monetary policy that has been announced by China's Politburo and People's Bank of China includes lowering down the interest rates. By lowering the interest rates, the central bank signaled the commercial banks to lower down the interest rates that are charged to business borrowers. This change in monetary policy aims to lower down the cost of borrowing money which will provide more funds accessible; more available funds are aimed to be channeled down to business owners as less stringent limits on lending are enforced as part of the policy.
By lowering the interest rates, the government aims to ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
(“Monetary Policy in China Essay Example | Topics and Well Written Essays - 1750 words”, n.d.)
Retrieved from
(Monetary Policy in China Essay Example | Topics and Well Written Essays - 1750 Words)
“Monetary Policy in China Essay Example | Topics and Well Written Essays - 1750 Words”, n.d.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Monetary Policy in China

Monetary Policy

...?Monetary Policy Countries all over the world are regulated by a government that consists of different departments that carries out various functionssuch as building infrastructure, providing benefits to its citizens, giving opportunities to the unemployed etc. One of these important functions includes the regulation of money supply in the country. This is dealt by the monetary policy of that particular country that has its limitations and demand serious attention from not only the policy makers but also the public who would have to follow these policies. Money supply is governed by the Monetary Policy....
3 Pages(750 words)Essay

Monetary policy

...Central banks are independent so that they operate under rules made to help them operate in a political free management (Kurgan and Wells 387). Therefore, this paper aims at obtaining a deep analysis on the role of central bank in use and implementation of monetary policy to stabilize the economy. This will be with respect to the great depression of 1929 to early 1940s. Monetary policy is the mean through which the monetary tools of a country control the flow of money. It mostly focuses on the rate of interest with an aim of promoting economic growth and stability. It is key role is to sustain, stable prices and maintain low levels of unemployment....
7 Pages(1750 words)Research Paper

Monetary policy

...? of the Running Head: Monetary Policy Part A Essay One What are “moral hazard” and “adverse selection”? What are their implications for bank lending? How does the “bank lending channel” of monetary policy transmission operate? Moral hazard occurs when borrowers are actually tempted to engage in activities that are undesirable for the lender while adverse selection takes place before any transaction occurs whereby the borrowers are most likely to produce negative outcome for the lender who is most likely seeking loans and are most likely to be chosen for the loans requested for (Haan & Eijffinger, 2005). The implications of bank lending involve a situation whereby many bank borrowers do not have close substitutes for bank funding... . This...
10 Pages(2500 words)Assignment

Monetary Policy

...? Monetary Policy Financial s and the Economy (INSERT SECTION Monetary Policy Financial s and the Economy Since the country’s founding, the United States Federal Government has struggled with the role and control of a central bank. The controversy surrounding the purpose of a central bank links to theoretical and practical economics and politics. Views concerning the control of a central bank vary from total autonomy to strict guidelines from Congress. In order to determine policy recommendations, the following is discussed: 1. Definitions of terms 2. The history and current role of the Federal Reserve system 3. The money supply and affecting factors 4....
8 Pages(2000 words)Essay

Monetary policy

...? Monetary Policy Answer one: Official cash rate is that rate of interest set by the Board of the ReserveBank of Australia which is charged on the overnight funds that are borrowed or lent between financial institutions. This implies that it is that rate which is charged by financial institutions in Australia’s banking sector to other banks for overnight loans. This official cash rate is an important monetary policy instrument that influences other interest rates within the market. The RBA often determines the official cash rate after deciding on what monetary policy target it intends to attain (Reserve Bank of Australia, 2012a). Such...
5 Pages(1250 words)Essay

Monetary policy

...? The Monetary Policy Of The Bank Of England Monetary Policy and how it Functions Economic stability and growth are important macroeconomic goals that must be pursued by all countries. To realize a steady and stable economic growth and development, it is important for the government through its relevant agencies to establish sound and sustainable economic policies. This starts from the macro and the micro levels of the economy (Stationery Office, 2006 p. 34). The economic stability of a country/state depends on the effectiveness of economic policies advanced in order to regulate the fiscal activities within the country and at the...
8 Pages(2000 words)Essay

China and Monetary Policy become the world's third largest trading nation, following the USA and Germany. To a large extent, the recent surge in trade is the combined outcome of China's continuous efforts in trade liberalization and active trade promoting policies. China's formal entry into the WTO in 2001 facilitated another round of trade liberalization, which has led to a new wave of trade expansion. Between 2001 and 2006, China's exports and imports grew at an average annual rate of 29.6 and 26.9 percent, respectively. As a result, China's trade to GDP ratio increased rapidly and substantially, from 40 percent in 2000, already a high level for a large economy, to 65...
40 Pages(10000 words)Coursework

The Role of IMF(International Monetary Fund) and its impact on Poblic Policy in China and South Korea

...The Role of IMF (International Monetary Fund) and its impact on Public Policy in China and South Korea Introduction Basic information about east Asia East Asia is a region in the continent of Asia that occupies about 28% of the whole Asian continent. This region has a high population of about 1.5 billion people, who forms 38% of the whole Asian continent. Compared to the whole world, this region comprises of over 20% of the world’s population. This region is made up of countries such as China, Taiwan, Japan and Korea. Reasons for selecting China and South Korea The basic reason for selecting China and South Korea is the fact that both...
4 Pages(1000 words)PowerPoint Presentation

Monetary policy

...Monetary policy QN1. Four Chapters in “In Fed we Trust” Ten items I never new of before reading the book Key Playersof the worst financial Crisis i. Three men were responsible in managing the Great Panic. ii. The key individuals were the Treasury Secretaries, Mr. Hank Paulson, The Federal Chairman, Mr. Ben Bernanke, and Tim Geithner. iii. Details of each key player’s characteristics, and there effects on incomes. iv. Their personalities had a noticeable effect on the impacts their decisions had on the monetary system. v. The negative effects of their moves on the psyche of the markets vi. Geithner and Paulson were more prone to Gaffs than Bernanke in the public eye. vii. The biggest...
2 Pages(500 words)Assignment

Monetary policy in china

...Monetary policy in china Executive Summary The financial system of China is mostly dominated by the banking sector and the economy of China is considered as one of the largest economy of the world. The two domestic stock exchanges of china are the Shenzhen stock exchange and the shanghai stock exchange which were established in the year 1990. The financial system of China is highly developed. But china has experienced a slow economic growth in the 1st quarter of 2015. The government is required to adopt adequate measures restricting the further fall in the growth rate of the economy. But despite of the...
6 Pages(1500 words)Coursework
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Monetary Policy in China for FREE!

Contact Us