In the year 2000, the Chinese economy’s growth was not as fast as the government expected. The Chinese government prolonged the Labour Day vacation (in May) to 7 days so that people could spend more. a. Explain this decision, using the model of aggregate demand and aggregate supply. (6%) b. Why did the Chinese government not wait until the economy adjusted back to its expected long-run position of high economic growth? (2%)
b.
Adjusting back is the process of self-correction. It requires time and during such span of time, the economy may suffer a lot (like recession, high unemployment, etc.).
The government may not want such situation; and therefore, took the early step.
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