What will happen if china decides to use govt intervention

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Reference no: EM13210283

Recently there have been several news talking about the slowdown of production (and productivity) in south-east Asia (especially China). Answer the following questions under the following assumptions: there are only two regions in the world; the U.S and China, the U.S. is net importer (therefore is more sensitive to changes in its imports), China is net exporter (therefore is more sensitive to changes in its exports), both countries are of similar economic size and also assume there is an important decrease in production in China but that this decrease doesn't eliminate trade between the two economies (it affects them but doesn't eliminate them).

a. Analyze and describe how the decrease in production (productivity) in China will affect unemployment, GDP, consumption, net export and other macroeconomic variables in China and in the U.S. (you should use the assumption of "ceteris paribus" in your analysis, if you encounter contradictory effects assume that one is bigger than the other to continue your analysis, you can also include analysis of the PPF and comparative advantage of each country and how importing and exporting industries are affected in each economy)

b. What will happen if China decides to use government intervention and starts a series of fiscal policies (increase government spending)?

Reference no: EM13210283

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