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Reevaluating History China Economic Boom

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The situation here is consistent with the law of supply and demand. Increase in the supply of bananas in the market will result to a decrease in the demand for bananas since consumers will have more to purchase at their disposal. As a result, demand will fall as evidenced by the shift in the demand curves above downward to the left i.e AD0-AD1.An increase in the supply of bananas will not only result to a fall in the demand but will also result to a fall in prices for the bananas form Pe to Pe’. Overly, the changes above will ultimately result to the shift on the equilibrium level from E0 to E1.


Effect of increase in people’s income

Increase in people’s income would result to improvement in the people’s purchasing power in the market thereby resulting to creation of excess demand for the bananas in the market consequently leading to the shift in the demand curves towards the left. The supply side of the market would also respond to the newly created excess demand by marketing more supplies. This would be depicted by the shift in the supply curves towards the right. With the increase in real income among the consumers, creation of excess demand will push down the prices in the market after some time. Equilibrium price level will also fall owing to the shift in the supply curve. The explanation above is reflected in the illustration below.

The performance of economy can be determined based on whether recession or boom based on the main macroeconomic indicators such as inflation, Exports, Gross Domestic Output and unemployment. Recession refers to the economic phase where a country’s economy experiences low levels of GDP, low business confidence, high inflation rates, high rates of unemployment, low levels of exports against imports(Christiano, Eichenbaum and Trabandt, 2015).On the other hand, boom phase of an economy is characterized by high growth in the levels of GDP, high levels of business confidence, low inflation levels within the healthy levels, high rate of employment, and high levels of exports against imports (Brandt and Rawski, 2014).

Just from the basic explanation of economic recession and economic boom above, the conclusion about economic performance of china for the year 2016 can be concluded on the basis of inflation, business confidence and export levels for that year. Right from the illustration of inflation rate over this period, it can be observed that inflation rate remained at productive levels over the period (Orphanides, 2003).Healthy inflation results to the creation of business confidence thereby creating an assurance for optimal returns by investors, achieved through adoption of business expansion plans.

Similarly, it can be observed that based on the trend of the unemployment curve, unemployment remained at low levels and further declined later on. This is a sufficient proof that Chinas economy had experienced boom. Nevertheless, the level of exports remained high too over the period. Based on the trend of export curves, it can be observed that exports sharply increased throughout the year. Despite the fact that there was a drop in business confidence as evidenced by the business confidence curve above, it grew sharply throughout 2006.

Aggregate demand refers to the total demand for goods and services in the economy. Aggregate demand is a function of employment, inflation rate and the level of exports. Unemployment rates remained high between 2005 and 2006.Inflation also fell sharply over this period. Overly, Chinas exports kept on increasing over this period. Low business confidence is never healthy for an economy. Low or lack of business confidence not only lowers a country’s GDP but also hinders growth in employment.

The performance of an economy is fundamentally determined by the level of GDP, inflation, the rate of unemployment, balance of trade, and the level of government against Gross Domestic Product. Based on Chinas macroeconomic indicators for the year 2017 above, it can be observed that the economy is at boom. This is evidenced by considerably by a significant fall in unemployment rate (0.5%) management to the previous period, a significant improvement in the level of balance of trade (10.06%) and considerably low ratio of government debt to Gross Domestic Product.



Brandt, L., Ma, D., & Rawski, T. G. (2014). From divergence to convergence: reevaluating the history behind China's economic boom. Journal of Economic Literature, 52(1), 45-123

Christiano, L. J., Eichenbaum, M. S., & Trabandt, M. (2015). Understanding the great recession. American Economic Journal: Macroeconomics, 7(1), 110-167.

Orphanides, A. (2003). The quest for prosperity without inflation. Journal of monetary Economics, 50(3), 633-663.


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