Question

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.

b. Why did the Chinese government not wait until the economy adjusted back to its expected long-run position of high economic growth?

Answer 1

Answer (a)

During the first quarter of the financial year 2000 the anualized growth of the chinese economy reached 8.1% officially which was 7.1% during the 1999 whole year.The retail price & sales, the consumer confidence is like wise turned upward.The decision was taken in the belief that the May week long vacation will work like a magic on the 2nd quarter .In this holiday nearly 24 million people travellled by train giving a rise of 24% over the week last year .The Restaurants and hotels were boomed with high demand and the aggregate supply was also high .The china record the highest number of visitors thorughout the break. In one day the revenue of YUNNAN which is a province of south western china was around $ 12 million .Beijing largest shops reported with huge sale .

Answer (b)

Keeping the expectation of its economy to adjust did not made the long vacation to be avoided because itwas the third time in the seventh month that the government of china has tried to give perk to the economy .This long break was actually granted for 50th anniversary of communist rule .The govt. called this scheme as holiday economic and it was success.

HAVE A GOOD DAY !