Chinese Economic Reforms Research Paper Example | Topics and Well Written Essays - 1500 words

Chinese Economic Reforms - Research Paper Example The agreement presents significant competitive opportunities in the financial sector." (Ostry, et.al., 2003). As the Chinese economy continues to growopens up and competes with other industrialized economies, around the world, effective market and monetary policies and objectives demand close attention. Sustainable growth of the economy will be possible if viable macro and micro economic policies are in place and take into account such variables such as inflation objectives, flexibility of lending institutions in the face of changing interest rates, rate of credit growth, continuing economic reforms and exchange rates. The dissertation will first examine Chinese economic reform and compile a body of literature offering objective analysis of key elements of the reform process, with a bias towards monetary policies, exchange rates and inflation. This work aims toe sole significance of this endeavor is to investigate unearth the main economic reforms and monetary policiescardinal arteries informing and shaping the Chinese economic status especially in regard to short term and long term inflation and exchange rates. Secondly, the dissertation will examine the monetary policies adopted by PBC in controlling inflation and exchange rates. ... Theory1 The monetarist theory posits that mismanagement of the primary cause of inflation is how the money in supply is the primary cause of inflation. is managed. Inflation can also be linked toPrincipally, the cause of inflation is pegged on the flexibility of the lending process. As such, inflation will largely depend to a large extent, on how flexible or inflexible the lending institutions are and the levels of interest rates levels as well. Monetarists do no't believe that fiscal policies and taxation have very as having little effect on to do with controlling inflation control (Paul, 2000). Mathematicallaccording to the my, 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. expounds that M.V=P.Q In the formula: M is the total value of money in circulation, V is the velocity of money, P is the average price level and Q is the index of the real values of expenditures. Key highlights: a) the average price level is a variable influenced by the magnitude of economic activities(Q), total value of money(M), and the velocity of money(V) b) The key influencing variable of prices level is fluctuations in the amount of money available. c) If the velocity of money is constant (though in reality it is not possible) , the supply of money will determine value of nominal output. d) Assuming that the velocity of money is fairly constant, then the level of inflation will be equal to the difference between long run growth rate of money supply and long run growth rate of real