Question

Before 2006-07, China’s GDP was able to grow at 8-10% with only moderate inflation. In 2006-07, some Chinese economists were arguing for more growth policies. However, with a GDP growth rate beyond 11% in 2007, China’s inflation surged rapidly to a peak of 8.7%. Use your answers in part (a) and part (b) to explain why (i) before 2006-07, China was able to grow at 8-10% with only moderate inflation; and (ii) there was a rapid surge in China’s inflation in 2007. What kind of assumption is implicit in the above Chinese economists’ argument for more growth policies? Is it a good assumption?

Answer 1

Answer

China GDP was able in 2006 to 2007 by rate of 8 to 10 % with moderate INFLATION but with a gdp growth in the 2007 beyond 11 % the inflation also increased in China rapidly at 8.7 %A sustained rise in prices is known as inflation. A large rise in prices / higher inflation rate is often caused by economic growth.Inflation often increases when economies experience booms in the economy.it is possible to have economic growth without rising inflation. If economic growth is close to the long run trend rate if demand increases at a similar rate to supply.

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