Deck 1: Introduction

Question 1

Go to FRED (the Federal Reserve Economic Database) OECD Based Recession Indicators (http://research.stlouisfed.org/fred2/series/CHNRECM) and compare this to Gross Domestic Product by Expenditure in Constant Prices: Total Gross Domestic Product for China: (http://research.stlouisfed.org/fred2/series/NAEXKP01CNA652S).
a. Are the OECD recession indicators for growth cycles or business cycles?
b. Identify the years of any outright business cycle recessions for China since 1980.

Answer 1

a. These are growth cycle recessions since we see from the second graph below that GDP appears to have never actually declined, which would be one characteristic (out of many) of a business cycle recession
b. Real Growth rates of China's GDP are seen in the graph below: It would appear that no outright business cycle recessions have occurred since 1980-though some say 1989 had one. We see 1976 (the year Chairman Mao died and a year after a recession in the United States) also is another possibility.

Question 2

Schramm identifies the adaptability and flexibility of the labor force as one of the key drivers for the Chinese economy. Pick one of the Ten Macro Facts at the end of the chapter that plays a similar role (a shock absorber) in a traditional Keynesian framework. Explain.

Answer 2

Macro Fact 6 is the only one with the word "flexibility" in it. Flexible prices and wages allow for economies to absorb "shocks" better, since they can change instead of some corresponding level of output or employment.

Question 3

Identify some key economic drivers (important economic/institutional/demographic factors that are fundamental and fundamentally different) that make the United States exceptional. Contrast with China.

Answer 3

There would be a multitude of responses to a question like this. I would say some key drivers for the American economy are:
i. Its Institutions: Ranging from its great universities, non-governmental institutions, voluntary organizations (non-profits), religious organizations, corporate governance structures, government institutions, financial institutions (notwithstanding the Great Financial Crisis) regulatory and legal institutions; the United States has invested a great deal in creating institutional capital.
ii. Its Diversity (in terms of race, ethnicity, and religions). This is a historical result of slavery (in the case of black Americans) and later an open immigration policy.
iii. Its Optimistic and Innovative Vision. Americans tend to believe in the unlimited potential of their people and their country and that all problems can be solved with creative thinking.
iv. Consumerism. Possibly the marketing capital of the world, the consumer is king and most American economists make that explicit in their focus on a utility function with consumption as the only argument.
Each of these characteristics (similar to the case of China) offer tradeoffs (good and bad). One contrast would certainly be the savings and consumer nexus. In terms of diversity, China is also culturally diverse across North and South, provinces and localities. In both countries, the accomplishments of a person are what matters rather than his/her class background. China is returning to its historical role as a global innovator and is also a nation of creative problem solvers. China has a long way to go in terms of developing the necessary institutions for sustainable and equitable growth.

Question 4

Decompose the three constituent components of Investment flows into the types of stocks that they accumulate into.

Question 5

If certain institutional structures in society, such as the family or the company, are important, compare and contrast their broader role in the Chinese and American economies.