Exchange Rate, Fiscal, Monetary Policies Essay

1336 WordsFeb 2, 20146 Pages
TABLE OF CONTENTS 1.0 ARTICLE SUMMARY 2 2.0 INTRODUCTION 2 3.0 ANALYSIS 4.1 EXCHANGE RATE 3 4.2 FISCAL POLICY 5 4.3 MONETARY POLICY 7 4.0 CONCLUSION 9 5.0 BIBLIOGRAPHY 10 1.0 ARTICLE SUMMARY The article by, titled “ China’s inflation eases due to tightening measures” was posted on 11 May 2011. It reports on how the rising food, fuel and housing prices have resulted in the high inflation and how the tightening policies will help the situation. 2.0 INTRODUCTION China’s rising inflation has become a concern to the global economy in the past few years. The country’s inflation rate has also been above its target band of keeping inflation below 3%, having an inflation rate of 5.3% in April 2011. This worries the world as “may of us rely on a great extent on cheap manufacturing supply us with a constant source of inexpensive consumer goods.” (Stepek 2007) Many issues with regards to the inflation rate of China have been brought up in this article. This report will aim to analyse the inflation in China through the aid of economic theories and models. This report will investigate the current situation, discussing exchange rate, fiscal policy and monetary policy along with an overall conclusion. 3.0 ANALYSIS 3.1 EXCHANGE RATE Exchange rate is defined as the value of the currency of a country in terms of another country. (Parry & Kemp 2009) In China, they are under the floating exchange rate, whereby exchange rate is being determined by the interaction between the demand for and supply of that currency. The value of Yuan is being determined by the demand for and the supply of its currency. Factors affecting the ‘demand for’ a currency include the amount of exports, the confidence in the Australia economy, amount of migration. Etc. Factors

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