Econmics 100 Essay Example | Topics and Well Written Essays - 1500 words

Econmics 100 - Essay Example Since the net export is a part of the gross domestic product, considerable rise in exports has led to significant rise in GDP of the country. This in turn is reflected in the higher growth rate of the economy. The growth of an economy is measured by calculating the changes occurring in the total volume of output in the economy or the real income of the individual residents of the nation. However, in recent years there has been less than expected level of economic growth. Therefore the government has adopted different fiscal and monetary policies to boost up economic activities in the country. This paper analyses the policy prescriptions followed by the government as presented in the article. 3.0 Analysis 3.1 Export led growth The 1993 United Nations System of National Accounts (1993 SNA) allows the countries to calculate their growth with the help of any of three credible indicators; the volume of the country’s gross domestic product (GDP), real gross domestic income or the re al gross national income. The GDP is the easiest and the most uncomplicated way to account for the growth of a country (World Development Indicators: 2012, 217). The gross domestic product is defined as â€Å"the market value of all final goods and services produced within a country in a given period of time† (Mankiw 2011, 494). The most commonly used approach to measure the GDP is the expenditure method (Taylor 2006, 138). Economists denote GDP as ‘Y’ and divide the components of GDP in to four parts; consumption (denoted by C), investment (denoted by I), government expenditure (denoted by G) and the net exports made by the country (denoted by NX) (Mankiw 2011, 496). The identity that represents the GDP calculation is as follows: Y = C + I + G + NX The net exports component of the GDP is actually the difference between the amount of export and the amount of imports made by the economy. If this difference is positive, it implies the amount of total exports is gre ater than the amount of total import and positive net exports increases the total GDP of the country. If the level of exports falls short of the level of imports, there is negative net export and the amount of GDP declines. The Chinese policy of emphasizing on exports has brought dauntless growth in the Chinese economy since the past three decades. However, recently the Chinese have been facing a huge external constraint in this path of growth. China depends on the international market heavily for its exports, particularly the U.S. and the Europe. The large scale exports made to the U.S. is leading to massive trade deficit in the U. S. It is causing financial vulnerability and discouraging the country’s manufacturing sector. This can potentially harm the development process of the country and stall its course of recovery that is still in progress after the severe sub-prime crisis that occurred in the year 2007. Since the USA is a large country in terms of the Chinese exports, recession in the country might affect the entire world economy, including China. Hence the Chine policy makers have considered shifting their attention towards domestic demand. As the article published in a BBC website says, the policymakers have expressed the desire â€Å"to increase domestic demand to reduce its dependence on exports and achieve more sustainable growth†