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Chapter 23: Q.19 (page 618)

Why did China fare much better than the United States and the United Kingdom during the 2007-2009 financial crisis?

Short Answer

Expert verified

China's economy is less reliant on the financial markets, and the Chinese authorities also pursued expansionary monetary policy and massive fiscal stimulus in response to the crisis.

Step by step solution

01

Step 1. Concept of Aggregate demand 

Aggregate demand refers to the economy's overall demand for final goods and services at any one time. The total amount of final goods and services provided into an economy's market in a given period of time is known as aggregate supply.

02

Step 2. Explanation

China fared significantly better than the United States and the United Kingdom because its economy is not as closely linked to the financial markets. However, because the United States and the United Kingdom are so closely linked to the financial markets, they are more affected by the financial crisis than China. During the financial crisis of 2007-2009, Chinese authorities also pursued expansionary monetary policy and massive fiscal stimulus in response.

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Most popular questions from this chapter

In its statement dated June 14,2017 , the Federal Open Market Committee indicated that inflation "is running somewhat below 2% . Go to http://research stlouisfed .org/fred2/, and click on the Series ID link "CPIAUCSL" (Consumer Price Index for All Urban Consumers: All Items-SA). Then click on the link "Percent Change from Year Ago." What has happened to the inflation rate since the time of the last reported value in Figure 16 ?

If the labor force becomes more productive over time, how would the long-run aggregate supply curve be affected?

“The appreciation of the dollar from 2012 to 2017 had a negative effect on aggregate demand in the United States.” Is this statement true, false, or uncertain? Explain your answer.

The Problems update with real-time data in My Lab Economics and are available for practice or instructor assignment.

1. Go to the St. Louis Federal Reserve FRED database, and find data on real government spending (GCEC1), real GDP (GDPC1), taxes (WO06RC1 Q 027 SBEA), and the personal consumption expenditure price index (PCECTPI), a measure of the price level. Download all of the data into a spreadsheet, and convert the tax data series into real taxes. To do this, for each quarter, divide taxes by the price index and then multiply by 100 .

a. Calculate the level change in real GDP over the four most recent quarters of data available and the four quarters prior to that.

b. Calculate the level change in real government spending and real taxes over the four most recent quarters of data available and the four quarters prior to that.

c. Are your results consistent with what you would expect? How do your answers to part (b) help explain, if at all, your answer to part (a)? Explain using the IS and A D curves.

Identify three factors that can shift the aggregate demand curve to the right and three different factors that can shift the aggregate demand curve to the left.
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