KEY QUESTION On average, households in China save 40 percent of their annual income each year, whereas households in the United States save less than 5 percent. Production possibilitics are growing at roughly 9 percent annually in China and 3.5 percent in the United States. Use graphical analysis of "present goods" versus "future goods" to explain the differences in growth rates. LO5
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This means that a larger portion of their income is spent on present goods rather than saved for future goods. Show more…
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GDP Expands 11.4 Percent, Fastest in 13 Years China's gross domestic product grew 11.4 percent last year and marked a fifth year of doubledigit growth. The increase was especially remarkable given that the United States is experiencing a slowdown due to the sub-prime crisis and housing slump. Citigroup estimates that each 1 percent drop in the U.S. economy will shave 1.3 percent off China's growth, because Americans are heavy users of Chinese products. In spite of the uncertainties, China is expected to post its sixth year of double-digit growth next year. Use the expenditure approach for calculating China's GDP to explain why "each 1 percent drop in the U.S. economy will shave 1.3 percent off China's growth."
In its recent report, The Conference Board's Global Economic Outlook 2015 , updated November 2014 (http://www.conference-board.org/data/ globaloutlook.cfm), projects China's 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' 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.
Suppose China decides to pay large subsidies to any Chinese company that exports goods or services to the United States. As a result, these companies are able to sell products in the United States at far below their cost of production. In addition, China decides to bar all imports from the United States. The dollars that the United States pays to import Chinese goods are left in banks in China. Will this strategy raise or lower the standard of living in China? Will it raise or lower the standard of living in the United States? Briefly explain. Be sure to provide a definition of standard of living" in your answer.
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