Hi, need to submit a 2000 words paper on the topic Chinese Economic Reforms. The monetarist theory posits that mismanagement of the money in supply is the primary cause of inflation. Inflation can als

  

Hi, need to submit a 2000 words paper on the topic Chinese Economic Reforms. The monetarist theory posits that mismanagement of the money in supply is the primary cause of inflation. Inflation can also be linked to the flexibility of the lending process. As such, inflation will depend to a large extent, on how flexible or inflexible the lending institutions are and interest rates levels as well. Monetarists do not believe that fiscal policies and taxation have very little effect on inflation control (Paul, 2000). according to the monetarists’ theory, a product of the total value of money in circulation and the velocity of the money is directly proportional to the product of the average price level and the index of the real values of expenditures. Monetarists expected ‘domestic prices and wages to be flexible enough to adjust to real and monetary policy shocks, they advocated an additional exchange rate flexibility as a Substitute for the lack of international price and wage flexibility. The Keynesian approach was based on the stickiness of wages and prices. With insufficient flexibility of wages and prices in general, the Keynesian approach asked for a buffer to smooth international shocks or to avoid domestic misalignments leading to external imbalances. Thus, in a Keynesian approach too, exchange rates should be flexible: flexible enough, if not floating freely, to avoid real cost inhibited by adjustment to unforeseen external events’ (Flassbeck, H 2001) The rapid growth of China’s economy has spurred a credible body of literature addressing key fundamentals shaping up and driving this booming economy. The main economic issues addressed by examined literature include the government’s monetary policies, domestic growth, capital inflows, central bank’s policies, and its independence, valuation if the renminbi, exchange rate policies, inflation, export and imports dynamics amongst other issues. (See for instance Goodfriend, M and Eswar Prasad, 2007)g Main economic aspects of the Chinese economy are given prominence in the examined strands of literature which rhyme with the spirit of the proposed study: inflation and exchange rates.(Goodfriend & Prasad 20076) elaborate on the fast economic growth that has characterized the Chinese economy. The authors argue that as this economy is transformed into a modern ., market-oriented phenomenon, it is inevitable that there be in place an independent monetary regime (i.e. a central bank) to ensure monetary planning is solely based on market and economic fundamentals. Goodfriend & Prasad specifically identify inflation as a major hindrance in facilitating economic prospects and job creation. They also made several recommendations that would help in stabilizing inflation. Firstly, they recommend ‘low long run inflation objective’ via the implementation of viable macroeconomic policies rhyming with the exponential growth of the economy.

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