china fiscal stance (1 Viewer)

[felixcthecat]

I'm just a bit confused while researching on how globalisation has affected China.. it says it has an expansionary fiscal policy yet it has a hugeee trade surplus esp from US and european trade.. are trade surplus/deficit not related to fiscal policy? is fiscal policy/stance just govt spending on infrastructure ? =Z

hm it's confusing my head ><// esp rite in the middle of these holidays.. i'm like in arguement between myself.. can someone make it clear for me plz?

 

[mitsui]

um iam typing from my head so yea. pretti bried to give u an idea

fiscal policy is the government budget. i donno wat type of budget it is having right now. (would think it wont be too much of an expansionary or contra. seeing it is still a communist country)

trade surplus r related to fiscal policy in one way or another but the huge trade surplus china is having right now is mainly due to its half-opening market to the foreign investment, and its currency.

its currency is still not floating freely (ie. wif demand/supply) so the labour and goods from china r cheap. that is the casue of its trade surplus.

fiscal policy is not juz how and how much govet is spending on infrastructure even thou it does include it. simply put, fiscal policy = the budget.

 

[Sparcod]

Fiscal Policy is the fed. govt's annual budget.

Here are the stances.
Neutral: G=T,neutral effect on level of economic activity.

Expansionary: G>T, Leads to an increase in economic activity (budget deficit) more spendin??? more injections??
Keynes said that it reduces aggregate demand and closes the deflationary gap where equilibrium income was lower than full employment income.


Contractionary: G<T, Keynes said that it reduces aggregate demand and closes the inflationary gap where equilibrium income was higher than full employment income.

 

[Sparcod]

Trade surplus means that exports>imports.

 

[felixcthecat]

yeaaa... i kno wut's expansionary.. i'm just not sure whether the trade surplus counts into the govt budget? cuz if it does, ... ohh maybe despite the huge trade surplus.. the govt uses all that surplus hence the fiscal stance is still expansionary? (ie, overal deficit..?)

 

[Sparcod]

trade has nothing to do with govt budget.
Remember...
GDP= C+G+I+X-M
They are seperate!!

 

[mitsui]

trade surplus is unrelated to the fiscal stance
howver, wat the govt has decided for its fiscal policy can affect the outcome of its trade balance

 

[Demandred]

It may, don't forget that though China has embraced free-market ideology, the government still has a big stake export oreintated industries, it may also earn revenue from tariffs.

Assuming China desires stable growth, any increases in trade balance should be counteracted with contractionary keynesian policies to cancel out any inflationary pressures.

 

[withoutaface]

Fiscal Policy is the fed. govt's annual budget.

Here are the stances.
Neutral: G=T,neutral effect on level of economic activity.

Expansionary: G>T, Leads to an increase in economic activity (budget deficit) more spendin??? more injections??
Keynes said that it reduces aggregate demand and closes the deflationary gap where equilibrium income was lower than full employment income.


Contractionary: G<T, Keynes said that it reduces aggregate demand and closes the inflationary gap where equilibrium income was higher than full employment income.

Keynes was a retard.

 

[Demandred]

I'd like to see your reasoning behind that statement withoutaface.

Hey Sparcod, there may be some dispute in your last statement, Montarists makes a pretty good argument that in the long term, any increases in leakages would have little effect on reducing inflation, therefore debasing the Keynesians. The whole thing is based on the notion of Montary Neutrality which uses David Hume's principles of nominal and real variables, you'll get to do that in more depth at Uni.

 

[Sparcod]

Thanks for clearing that up.

trade surplus is unrelated to the fiscal stance
howver, wat the govt has decided for its fiscal policy can affect the outcome of its trade balance

How does the government affect the trade outcome?

 

[Demandred]

Subsidies, quotas, tariffs.

 

[felixcthecat]

Assuming China desires stable growth, any increases in trade balance should be counteracted with contractionary keynesian policies to cancel out any inflationary pressures.

ohh.. so the huge trade surplus is creating a huge inflationary pressure so the previous expansionary fiscal stance has to be moved to a more neutral stance (so i read...) so despite the trade outcome has nothing to do with the fiscal stance, the inflationary pressures require the govt to change that fiscal stance from expansionary to more neutral in this instant (or neutral to contractionary in other cases)

yayy i think i get it, lol.. if wut i said was rite ^^.. or is there more to it? =='

 

[felixcthecat]

It may, don't forget that though China has embraced free-market ideology, the government still has a big stake export oreintated industries, it may also earn revenue from tariffs.

Assuming China desires stable growth, any increases in trade balance should be counteracted with contractionary keynesian policies to cancel out any inflationary pressures.

now thinking about it.. wut exactly are keynesian policies? i've read it somewhere but never read it in detail to understand it. =Z

 

[Demandred]

Contractionary / expansionary fiscal policy, could also be referred as contractionary / expansionary monetary policy. You'll get to learn that near the end of the course.

 

[felixcthecat]

Contractionary / expansionary fiscal policy, could also be referred as contractionary / expansionary monetary policy. You'll get to learn that near the end of the course.

hmm how is fiscal and MP the same ><'' one's on interest rate one's on govt budget..

 

[Demandred]

hmm how is fiscal and MP the same ><'' one's on interest rate one's on govt budget..

Sorry I should rephrase it:

MP could also be called a Keynesian policy.

 

[felixcthecat]

mhmm alrite then..! thx