Answer to Question #150523 in Macroeconomics for SHUANG

Question

According to the East Asia and Pasific Economic update published by the World Bank in April 2015, the following factors have affected China’s real GDP in 2015.
• Global economic recovery supports a moderate increase in China’s exports.
• China benefits from a fall in the world price of oil
• Chinese government to cut excess capacity in heavy industry
• U.S firms to relocate their labor-intensive manufacturing industries to low-cost a countries.

7. Explain how each factor separately affect China’s real GDP and the price level, starting from a position of long-run equilibrium. (3 marks)

8. Explain the combined effects of these factors on China’s real GDP and the price level, starting from a position of long-run equilibrium. (3 marks)

Answer 1

7 . Increase in china's export will lead to flow of foreign currency into china hence increasing GDP. Most industries and transportation in china depends mainly on oil. Reduction in oil prices means low cost in production. When government cuts excess capacity, heavy industries production will increase.

8 . As the world economies fall, China takes advantage as the production is high leading to high supply and prices to be low. This attracted many markets and hence increasing China's export leading to growth in China's GDP.