Question

1) Why China doesn't sell US bonds owned by the Chinese government? Or why not return them to America and get their money back?

2) In the event of a depression / or economic stagnation, what is the best way for the government to revive the economy? by using government expenses or using taxes? And why?

Answer 1

ANS 1

There are certain major reasons as to why China doesn't sell US bonds owned by the government and also it does not return them to America because when been evaluated on a larger scale , China sells more goods to US as compared to the amount that US sales to China . The major portion of income for China is derived from the exports to China and holding the US treasuries helps China to reduce the export costs . Also China holds a huge amount of debt over USA and this amount is used by Chinese Government to hold their currency at a stable rate as the Yuan is not fully free floating currency and so that they can make their exports look more and more luring and one of the major points which cannot be under estimated is that China uses this power to uphold the political supermacy over US.

ANS 2

The event of depression is considered to be even worse than economic inflation and it also results in negative impact on GDP with economic slowdown ,it is the period of prolonged recession in which there is large amount of unemployment and it also results in shutting down of industries and frames a negative mindset on the investors and also to the working class citizens. Government expenses is basically the best way to revive the economy from depression as it is based on the model which explains that if economy will have an increase in liquidity and which in turn will increase the public expenditure and which increases the demand for goods and services. This results into the effect in which industries produce more goods and services to match the market demand and to match this demand, industries have to increase the employment. This increases the income in the economy and the economic depression decreases and economy gets in control.