Ib Economics Comentary

IB ECONOMICS INTERNAL ASSESSMENT FRONT COVER give instruction code Luanda International School * Candidate Name Noel Castellanos * Candidate routine * Teacher Sebastian Sanogueira * Title of the bind Chinas inflation downfalls to 1. 8 per cent, expectant Beijing more room to stimulate slowing sparing * computer address of the article Canadian Businesses http//www. apprizeadianbusiness. com/article/94646china-s-inflation-falls-to-1-8-per-cent-giving-beijing-more-room-to-stimulate-slowing-economy (accessed on 27/08/2012) Date the article was published 09/08/2012 * Date the commentary was written 01/09/2012 * Word Count 774 * sectionalization of the syllabus the article relates to Macro economics When talking about macroeconomics, two of the main goals of the governing are to keep inflation low and constant and keep the economy growth uplifted and stable. Inflation offer be define as a persistent, substantial rise in the general take of figure out related to an cast u p in the volume of property and resulting in the pass of value of currency and economic growth can be outlined as a steady growth in the productive strength of the economy.These two goals go hand on hand, as in many ways they depend on each sepa rove. The last few eld China has experienced a high rate of inflation primarily due to a 2. 4% rise in food prices, which has elicit a slowdown in the economic growth of the country. This was caused because the heart furnish of the country diminutiond. Aggregate supply is delineate as the total supply of goods and services produced within an economy at a given(p) boilersuit price level in a given time period.The drop of the amount of money supply caused a shift in the short head join supply curve to the left, and consequently increased prices and simplificationd the genuinely output of the economy, slowing the economic growth, as shown in the graph below. The decrease of the real output would probably lead to higher(prenomin al) unemployment rate, since companies would not buzz off the same ability to pay all of the employees because companies are not fashioning as much money, so cuts would have to be made. Unemployment rate is defined as the percentage of the work force that is unemployed.Chinese manufacturing barely grew in July. The causation for these was because the high prices eventually led to a decrease on the aggregate demand, as state would try to spend less and save more, slip the aggregate demand to the left (AD AD1). Aggregate demand is define as the totalamountof goods and services demandedin the economy at a given overall price level and in a given time period. With a decrease in aggregate demand and aggregate supply, the real output would decrease even more, affecting the money exhausted in the manufacture of the country. This is shown in the graph below.What China has been trying to do to increase the economic growth is to cut evoke rates, and pump money into the economy through high spending on building low-cost housing and other public works. By cutting interest rates, people are more willing to borrow money and spend it in the economy, increasing the economic growth of the country. In August inflation vicious to 1. 8%, from a 2. 2% of the previous month and even higher inflation rate the previous year. With the lower inflation rates, the government has more room to make cuts in the interest rates and take other measures to increase the economy.The problem with this is that the decrease of the steady decrease of inflation can make China to enter in a period of deflation. Deflation can be defined as a general decline in prices. This can potentially be very dangerous for the economy. The reason existence that because of the prices decreasing, consumers would save money expecting lower prices, decreasing aggregate demand, shimmy the aggregate supply curve to the left (AD AD1) decreasing the average price level and the real output, which would lead to de crease in aggregate demand shifting the aggregate supply curve to the left (SRAS SRAS1). This would create even more deflation and repeat the same process again, making scald and worst creating a downward spiral, as shown in the graph below. This would create very high unemployment, as companies? revenues and wages would get lower and lower, and economic growth would decrease even more. In many ways, and according to this evidence, deflation is a far worst case than high inflation, since both have almost the same effect, only if deflation is more drastic.The decline of inflation is mainly due to a fall in commodity prices. So to avoid a case of deflation, the Chinese government needs to be very cautious about the economic growth of the economy, because the fastest the increase in the economic growth, the fastest the increase of the prices in commodity prices, making this way, a steady inflation rate in the economy. To keep the economic growth the government could spend more money in the infrastructure of the country, because this would make the consumers more confident on spending money.Also the government could try to decrease unemployment by creating job information programs and injecting money to companies, so that they employ more. And finally the government should cut interest rates as much as they can. Bibliography Saturday Sep 1. Investopedia a Educating the instauration about Finance. N. p. , n. d. Web. 01 Sept. 2012. lthttp//www. investopedia. com/gt. Dictionary. com. Dictionary. com, n. d. Web. 01 Sept. 2012. lthttp//dictionary. reference. com/gt.