Chinas Inflation and related factors Essay Example | Topics and Well Written Essays - 3000 words

Chinas Inflation and related factors - Essay Example Moreover, it focuses on the measures utilized by the Federal Reserve to tackle inflation. Additionally, it emphasizes the importance of price stability within the Chinese economy with specific concern to the fluctuating CPI (Consumer price index). The article talks about persistent inflation in China. The models and theories used in this article are: 1. Demand-Pull Inflation 2. Price Level connection with Real GDP 3. Business Cycle 4. Monetary Policy 5. Price stability 6. Consumer Price Index Points Highlighted from the Newspaper Article but inflation accelerated to a nearly three-year high in March, (GDP figure is better than expected) GDP figure is better than expected tightening monetary policy, consumer price index rose 5.4 per cent from a year China's producer price index, CPI fell 0.2 per cent China's anti-inflation policies were effective. necessary to maintain price stability inflation almost always falls in the month after the Lunar What is Inflation and Why Inflation increa sed in China? What Does Inflation Mean? The rate at general level of prices of items and services rises. The subsequent fall in purchasing power is also result in inflation. Central banks try to stop the severe inflation, along with the severe deflation, in order to keep the excessive raising of prices to minimum. Economists distinguish between the two types of inflation: Demand-Pull Inflation and Cost-Push Inflation. (Defining Inflation )Both types of inflation may cause an increase in the economical price level within the economy. Demand-pull inflation may result when aggregate demand for goods and services in the economy rise at a rapid space than an economy's productive capacity. This is shown in the figure below The excess demand is the reason for consistent inflation in the economy. Moreover, experts also attribute China inescapable inflationary spiral to US dollar pegging as long as China Yuan keeps pegged to the U.S. dollar, it will rise. This is because the American economy is weakening where as the China economy is strengthening (What is the real reason behind Chinese inflation, 2011) China therefore needs to control Yuan appreciation (China Inflation cause concern in Business News , 2011) During the peak periods of business cycle when China’s economy is experiencing growth in real GDP, employment will naturally increase, and unemployment decrease would decrease, this is because the businesses would seek workers to produce a higher output to fulfill demand needs. If the real GDP grows better this can cause price inflation as firms would be forced to fight against one another for generally increasing scarce workers. This is in contrast during the trough periods of the business cycle where the economy is experiencing declines in the real GDP, and unemployment rates becomes high. GDP = (Total dollar value of goods and services that are changing hands) MINUS (Inflation) GDP can grow, even when there is inflation GDP is: Yes, GDP (Gross Domestic Pr oduct) can even grow, when there is inflation. But for such to happen (theoretically) more goods and services would actually need to be exchanged, rather than having the same prices for the same amount of goods and services. One of the reasons that the China’s Economy is able to claim that GDP ( Gross Domestic Pro