The paper "Increase in the Supply of Chinese Yuan" is an outstanding example of a micro and macroeconomic assignment. Quantitative easing refers to a type of monetary policy whereby the central bank creates new electronic money, in a bid to purchase government bonds or any other valuable financial assets (Godley, Papadimitriou, and Zezza 23). Purchasing these assets helps in stimulating the economy of a given county. Therefore, quantitative easing involves policies that help in enhancing the expansionary monetary policy. Chinese reacted to the U. S. QE by expressing total dismay.
This is due to the overweight that the US solar had positioned in their foreign currency reserves. The US QE policy has a negative impact on the economy of the Chinese, and this increased the level of complaints on the part of the Chinese Government. In regards to China, most economists in the country believe that QE in the United States increased the rate of inflation in China. Firstly, the US QE increased the prices of international food and the energy prices as well in the market (Godley, Papadimitriou, and Zezza 27).
Additionally, it also increased the interest rates, which greatly put appreciation pressure on the Chinese currency (Chinese Yuan). The appreciation of the Chinese Yuan will decrease the rate of exportation from China to the US, and increase the rate of importation from the US to China. Resultantly, this scenario will raise the trade deficit that exists between China and the US. The main outcome of this situation is that there will be the erosion of Chinese foreign reserves and China will greatly feel the weight of the US dollar. For this reason, the Chinese Government is not pleased with the US QE policy, since it will only degrade the nation’ s economic value.
To reverse this situation, it is recommendable for the Chinese Government to purchase US currency from the foreign exchange market. By doing this, the supply of the Chinese Yuan will increase, and this may cause depreciation of its value. A figure showing the existing relationship between the exchange rate and the dollar value Based on the figure above, it is evident that a reduction in exchange rate results in the supply curve shifting from S dollar 1 to S dollar 2.
Godley, Wynne, Dimitri B. Papadimitriou, and Gennaro Zezza. Contributions to Stock-Flow Modeling: Essays in Honor of Wynne Godley. Basingstoke: Palgrave Macmillan, 2012. Web.
Kristjansdottir, Helga. Sustainable Energy Resources and Economics in Iceland and Greenland, 2015. Web.