Question

Please explain the main features of China's expansionary fiscal policy 2018? I know it involves increased government spending and tax cuts but what exactly? I need to understand how and why it would affect the GDP formula... C+I+G+(X-M)?

Thank you! I would appreciate any graphs etc

Answer 1

The china government has aimed to increase its money supply in the economy and the main features of china’s expansionary fiscal policy 2018 are:

• Increasing government spending on developmental projects to increase money supply in the economy.
• Reduction in tax rates to increase income with people which will increase their consumption expenditure and investments it will lead to increase in cash flow in the economy.

  

Both these step have direct effect on GDP formula : C+I+G+(X-M)

Where; C is consumption expenditure

               I – investments

               G – Government expenditure

                X-M = net exports

If government will increase its spending and reduce tax rates it will increase disposable income of people which will lead to increase in their consumption expenditures and if people will have more income than they will invest some part of their money to earn profits and increase in investments will lead to increase in money supply in the economy. If the economy have sufficient money supply than it will increase the foreign tarde of country which will further increase their net exports.