Macro & Micro Economics Of PRC Essay Example | Topics and Well Written Essays - 1000 words

Macro & Micro Economics Of chinaw atomic number 18 - Essay ExamplePRC is consciously making effort to lower its inflation rate and/or manage inflation expectations by raising bank reserve ratio of deposits through a directive from PRCs Central Bank. This brings as to the low gear question as to how will this affect the balance sheets of both the banks and the PRCs Central Bank. As regard to the banks, their assets, particular deposits will decrease and the analogous amount will growing the reserve in the Liabilities portion in their Balance Sheet. Expectedly, the assets of the Central Bank either in receivables or deposits will increase as well as their reserves. Normally, banks hold two bank reserves, one is used for cashing checks or satisfying clients withdrawals age the other is called legal reserves or sometimes called federal reserves or central bank reserves. This is the specific reserves that the PRCs Central Bank wanted to be increase by the banks, and for this year al one, the reserve requirement ratio (RRR) has been raised for the 5th time to a record high of 21 percent according to Xinhua. PRCs Central Bank recent move which is a contractionary monetary policy according to Li-Gang Liu, could help manage excessive liquidity in the foodstuff but the economic growth of PRC will slow down, however steady during the next two years. Asian Development Bank said in its 2011 Asian Development Outlook that there is very little risk of hard landing because growth momentum remains robust for the medium barrier.. As compared to last year the Gross Domestic Product (GDP) growth will slow to 9.3% in 2011, a dip from 10.3% annual growth in 2010 (Global Times), mainly due to stubborn inflation this year. One determinant factor of inflation is the Consumer Price Index (CPI), as the CPI rise so is the inflation. Consumer outgo is one of the major components in arriving at the total GDP, the others are government expenditures, gross investment and the net of ex ports versus imports. Consumer consumption may not be a factor at this time because wages will not outpace production. Government expenditures were already programmed to pay maturing foreign loans, hence will be constant, while investment will decrease minimally due to the expected increase in interest rates. The one that will affect most in figuring the GDP is the net difference between exports and imports. As I analyze it, imports will continue to outpace exports due primarily to higher demands for fuel consumption, which are outsourced externally. The World Bank said strong domestic demand and relative price changes have reduced the importance of external trade for China (Reuters.com) on that point might be an oversupply of products which will considerably affect prices and therefore have an effect on equilibrium. As regards the aggregate expenses, again this will tilt to below as the net effect of imports versus exports is high. PRCs Central Bank raising of RRR will certainly have an effect on the silver multiplier since it will