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Assignment Questions

China’s Central Bank

Write a 4-5 page paper, double-spaced, Arial 12pt font, 1 inch margins all around (top, bottom, left, and right) that addresses the following news event summarized below
In a totally unexpected move, China’s central bank announced that commercial banksmust give them an additional 0.5% of deposits. But it was also done to help combat, meaning counteract the easing of monetary policy here in the US. And to help keep the Chinese currency from appreciating (rising) too much that it will slow down China’s economic growth.
FYI, the US and other world economies have been pushing China to let their currency rise. The fear by those economies and the US is that a continuing low-valued Chinese currency will make economic recovery tougher. So they’d like China to allow their currency to rise, slowing their economy down so the rest of the world can recover faster. However, China’s reluctance to let their currency rise is something that’s frustrated other world economies.
China has said the Fed’s recent easing monetary policy is pretty much a “de facto devaluation of the dollar.” In other words, without officially devaluing the dollar, the Fed has taken action that basically does just that. So in response, China has taken steps to tighten their monetary policy.

In your papers, please address the following questions. And remember, your grade will be based upon the depth of your analysis!

? Exactly how will China’s announcement saying banks need to hold more deposits with the central bank effect the balance sheets of both the banks and the Chinese CentralBank. This includes explaining the kind of reserves banks hold. And how this news impacts each of those reserves.
? Explain the economic impact by the People’s Central Bank on China’s economy. How do you think it’ll impact GDP and specifically why? Make sure you discuss the various components of GDP. And which one(s) you think will be effected and how. Also discuss the effect on equilbrium and aggregate expenses. Make sure you explain your reason(s) why.
? What impact will the Chinese Central Bank’s decision have on the money multiplier? How will the spending and investment multipliers be effected? And what impact, if any, would you expect on MPS, MPC, APC, and APS? FYI, don’t forget to explain what each of these is.
? How will China’s announcement effect interest rates in China? And what impact will it have on aggregate demand and supply? Make sure you clearly explain how demand and/or supply will be effected. This way I can tell if you feel one or both are effected, and exactly how so.

Important Notes:
1. Make sure you limit your paper’s focus to the quesitions being asked
2. No outside resources and/or researching may be used! You are not allowed to do things such as surf the net, use other books & resources, etc.
3. This is strictly individual work, not group! You are not permitted to work with anybody else on this. You need to do your own work or it’s considered cheating!
4. Bullets are not allowed! And graphs do not count towards the 4-5 pages!
5. No outside research! This means you must limit yourself to the news event here. So you cannot do more research into the event and/or China policy. You are limited to the info in the news event itself!
6. Do not include the questions in your paper! Your entire paper must be devoted entirely to answering the specific questions I’m asking.
7. Your entire paper must be written in paragraph form! So write it as if you were doing an English essay. And just 1 double-spaced line between paragraphs.
8. No quoting the book or any other class materials! Everything must be in your own words. And because you are not permitted to quote others or do outside research, you won’t need a page or section for citations. Your entire paper will be paragraphs answering my questions.

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