Q.17 In its recent report, The Confer... [FREE SOLUTION]

Chapter 25: Q.17 (page 623)

In its recent report, The Conference Board鈥檚 Global Economic Outlook $2015$ , updated November $2014$ (http://www.conference-board.org/data/ globaloutlook.cfm), projects China鈥檚 growth between $2015$ and $2019$ to be about $5.5 %$ . International Business Times (http://www.ibtimes.com/us-exports-china-havegrown- $294$ -over-past-decade- $1338693$ ) reports that China is the United States鈥� third largest export market, with exports to China growing $294 %$ over the last ten years. Explain what impact China has on the U.S. economy.

Short Answer

Expert verified

China's growth will result in an increase in US net exports, which will result in an overall increase in aggregate demand, which will lead to an increase in both price and output.

Step by step solution

China's impact on the U. S. Economy

The impact of China on the US economy is that it accounts for a significant portion of US exports. As a result, because China accounts for a large portion of exports, it has a positive impact on net exports. As a result of our ability to export so much to China, net exports are increasing in tandem with its growth. Their annual growth rate is around $5.5$ percent. This indicates that as China grows, the United States will continue to export more.

Concept Explained

If net exports continue to rise, the aggregate demand curve in the United States will only rise.As a result, aggregate demand will shift to the right, resulting in a new equilibrium level. This will show us a rise in the price level, or at the very least some level of inflation, as well as a rise in output. Because there is a small inflation gap between aggregate demand and aggregate supply in the US economy, there isn't a significant increase in output.

It is important to note that China's growth will result in an increase in US net exports, which will result in an overall increase in aggregate demand, which will lead to an increase in both price and output.