Economic growth, money growth, and inflation are highly related. In the graph displayed above we can see China’s figures over the years 2003-2012. Inflation increases with money growth.
In years of financial distress, e.g. during the last financial crisis (here: economic growth numbers hit the decline stage in 2007), especially to be noticed in the year 2009 in the displayed graph, people feel more reluctant to invest their money and tend to hold on to their limited financial assets. Therefore the government increased China’s money supply drastically, which explains the money growth peak of 2009 (28.42%). By increasing and decreasing the money supply China’s government attempts to control the economy. If the growth of the money supply is slowed too much, the economy will slow as well. In times of economic troubles an increase of the money supply intends to stimulate the economy with additional liquid assets. However, if the money supply grows too much the rate of inflation will eventually increase. Since inflation is known to be a lagging economic indicator, we initially notice a long term low in 2009 of -0.7%. However inflation picks up soon after the increased money growth of 2009 and amounts to 3.31% in 2010. Money growth stimulates inflation, meaning increased money growth will also lead to increased inflation short after. Decreased money supply on the other hand will be followed by a decrease in inflation.
The central bank attempts to control the expanding and contracting of GDP, as we know when GDP grows too quickly it may contract quickly soon after. One tool the central bank may use to affect the expansion and contraction is its monetary policy. In times of economic boom the Central Bank may use contractionary monetar...
... middle of paper ...
...a contains 36 percent of the rare earth deposits in the world. However by
16
restricting its exports of rare earth elements China break global trade rules, according to
the World Trade Organization (WTO). The Chinese government has been reinforcing and
improving its comprehensive regulation on high-polluting, high-energy-consuming and
resource-consuming products in recent years and believes that these regulatory measures
are perfectly consistent with the objective of sustainable development promoted by the
WTO. However, China's restrictions saw prices of these elements surge, prompting the US,
European Union and Japan to lodge a complaint with the WTO.
A noteworthy fact about China’s farming industry is that it has more pigs than the next 43
pork producing countries combined. Those contribute not only for domestic demand but
also for export supply.
money.In the line “To be made of it !” Gioia uses a hyperbole by referring to rich people as being
Chang, Emily. "Inside the Cat and Dog Meat Market in China." CNN. Cable News Network, 09 Mar. 2010. Web. 04 Mar. 2014
In this section I will be discussing how inflation rates have increased over the past 40 years, and what effect this has had on monetary growth. Inflation rates are defined as the rate of change in price levels in our economy especially Canada. Surveys are conducted quarterly or monthly to determine and generate a Consumer Price Index. The CPI is conducted with a “basket of goods” to determine changes in consumer prices for Canadians. It is important to study and analyze the rate of inflation because it helps the government determine how the dollar value has changed over a period of time. Also to adjust pending contracts and initiate new pensions which have to take into account the effect of inflation. Less well-off people and elderly are more
The Federal Reserve and Macroeconomic Factors Introduction The Federal Reserve controls the economy of the United States through a variety of tools. They use these tools to shape the monetary policy of the United States in order to promote economic growth and reduce the rate of inflation and the unemployment rate. By adjusting these tools, the Fed is able to control the amount of money in the supply. By controlling the amount of money, the Fed can affect the macro-economic indicators and steer the economy away from runaway inflation or a recession.
The seventh chapter asks, ‘Why Do Central Bankers Have Power over the Economy?’. In this chapter, the authors evaluate the power of central banks during normal and tough times and question whether central banks ‘have the power to control something as huge as the macroeonomy’ (p.74).
In the study of macroeconomics there are several sub factors that affect the economy either favorably or adversely. One dynamic of macroeconomics is monetary policy. Monetary policy consists of deliberate changes in the money supply to influence interest rates and thus the level of spending in the economy. “The goal of a monetary policy is to achieve and maintain price level stability, full employment and economic growth.” (McConnell & Brue, 2004).
The idea of the money growth rule is contingent upon the relationship between the money supply and inflation. Therefore, the question arises whether there even is a relationship between money supply and inflation. As stated earlier, one can see a relation between money and inflation. Presented above is series data that displays this relationship between money supply and the inflation rate over the previous decades. The problem is that there are fluctuations within the data and therefore a broader definition of the money supply must be utilized. Based on the research of Dr. Terry J. Fitzgerald, an economist at the Cleveland Federal Reserve Bank, if one defines money supply as M2, when examining the data over a multiple year progression, a pattern begins to present itself. Further, by graphing the difference between adjusted money growth and inflation, the link becomes evident. These graphs show the weight that changes to the money supply can have upon an economy’s inflation rate.
Xingzhong, LI Daokui David YIN. "The International Monetary System in the Era of Post-Financial Crisis: What Policy Options Does China Have?[J]." Journal of Financial Research 2 (2010): 005
There is a close relationship between Gross Domestic Product (GDP) and the unemployment rate as it relates to the decrease or increase in inflation rate. The inflation rate will increase when GDP and unemployment decrease, because it will affect the purchasing power of the people of a particular country. From 1997 to 1998, both countries : Thailand and Indonesia reached their highest peak of inflation, which is 9.24% and 75.27% respectively. It is caused by the Asian financial crisis which hit most of the Asian countries. The crisis started in Thailand as its currency, Baht, is attacked by the currency traders, and eventually devalued after they found out that the market is unstaintable.
Money supply is the availability of money in the hands of the public (economy) that can be used to purchase goods, services and securities. In macroeconomics, the price of money is equivalent to the rate of interest. There's an inverse relationship between money supply and interest rates. As money supply increases, interest will decrease. On the other hand, interest will increases as money supply decreases. It is very important to understand that the economy works at market equilibrium. There are several factors affecting money supply; and these contributing factors will be the main focus of this paper. Understanding the basic principle on money supply is imperative to have a good grasp on the macroeconomic impact of money supply on business operations.
As a result of this economic growth families will begin to feel more confident and will begin to spend more of their money instead of saving it because they believe that will receive a pay raise or will find a better job. (Amadeo, 2016) Borrowing also increases when economic activity is high people begin to borrow from banks and other places because they feel that the government has been doing a great job managing the economy. (Amadeo, 2016) As we have seen in 2008 people should never get to confident in the economy because our economic bubbles are used to crashing when they are doing very well and it’s never really the people’s fault it’s the governments. Although inflation begins to rise when the economy is doing great one of the things that is known to bring prices down is competition among businesses. Competition is great because one company will attempt to sell a product for a cheaper price than another company which results in lower prices the same as you see with cell phones and automobiles. Higher prices can also be caused by technological innovations when people are expecting a new product the producer can sell it for a higher price because they know that consumers will spend almost any amont of money to obtain that product. (Amadeo, 2016) Higher demand for new products will increase employment to meet those demands and inflation will rise which will benefit the economy tremendously. Whenever the price level increases, spending must also increase to be able to buy the same amount of goods and
For the forecast, the PBC will adapt to the dynamic economic environment, to ensure the policies continuity and stability, maintain the prudent monetary policy and continuing a moderate elastic scope (China Monetary Policy Report 2015). In addition, Chinese government will remain a more proactive fiscal policy. They will moderately increase the financial deficit and preparing to make the biggest reform in the policy and avoiding the fiscal cliff, especially focus on the tax system and expand the effectiveness of government’s expenditure (Cevik and Carolina-Caro 2015). Meanwhile, China will strengthen the coordinate of monetary and fiscal policies, which stabilizing the Chinese economic
Economic growth is one of the most important fields in economics. In current generation economic is developing well. Economic growth is really important to country and for the world as well. Economic are one of the identity for country because it shows a country development and attraction for other countries (F, Peter. 2014). For example well economic develop such as Singapore, Dubai, New York, and Japan. These countries are well develop and maintaining their economic growths. Economic growths are really important because higher average incomes enables consumers to enjoy more goods and services. Then, lower unemployment with higher output and positive economic growth firms tend to utilize more workers creating more employment. Enhanced public
Inflation is the rate at which the purchasing power of currency is falling, consequently, the general level of prices for goods and services is rising. Central banks endeavor to point of confinement inflation, and maintain a strategic distance from collapse i.e. deflation, with a specific end goal to keep the economy running smoothly.
Inflation is one of the most important economic issues in the world. It can be defined as the price of goods and services rising over monthly or yearly. Inflation leads to a decline in the value of money, it means that we cannot buy something at a price that same as before. This situation will increase our cost of living.