Economics Today 18th Edition by Roger LeRoy Miller

Exercise 1

Hukou's Depressing Effect on Autonomous Consumption in China
Wei Yinping, a 26-year-old worker at a watchband factory in the city of Shenzhen, China, saves about half of her monthly after-tax income. She saves such a large portion of her disposable income because she is one of China'S₂30 million residents classified by the government's hukou registration system as a rural dweller instead of as a resident of Shenzhen. Under the hukou system, which has its 4,000-year-old roots in the Xia Dynasty but was established in its current form in 1949, Yinping is officially classified as a resident of the rural area where she was born. As a consequence, even though she pays taxes like any other city resident, she is not eligible for city services, including health care services. "If I had a local hukou [classification]," Yinping says, "I would have many social security benefits and would not have to save so much."
Economists agree that most young and healthy city residents such as Yinping save more than is really required, on average, to cover the actual costs of services from which the hukou system excludes access. Thus, at every level of real disposable income, these people save more than they would in the absence of the hukou system, which artificially reduces the nation's annual level of autonomous consumption spending. In this way, the hukou system artificially shifts China's consumption function downward.
If the hukou system were ended, what would happen to China's C + I + G + X curve?