Essays on Finance Article2 Article

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Finance Article The Reason for Writing the Article Ever since the financial crisis has engulfed the United s, there is a common belief that China has surpassed the U. S and has become the worlds leading economy. The authors main aim is to thrash this misconception prevailing among ordinary Americans. The Key Question in the Article Ever since 2009, it is a common perception among the people of U. S and media that U. S. economy is not a leading economy. Author has tried to prove through numbers that this is not at all correct. Most Important Information In order to substantiate his argument, the author speaks about unemployment rate and Gross Domestic Product numbers that prevailed in 2009.

According to the author, U.S. unemployment rate was 9 percent; in contrast, as reported by Chinese Academy of Social Sciences, China had unemployment rate of 9.4 percent before the full impact of the economic crisis really began. The author is of the opinion that true Chinese unemployment is certainly more than 20 percent. The author stresses that American unemployment rate is certainly not worse than Chinese unemployment rate. In 2009, the U. S GDP was $15 trillion in contrast to Chinese GDP that stood at $5 trillion.

This difference in GDP was in spite of the huge population difference. On income front, per capita income of U. S citizen was $48,000 compared to average Chinese income of less than $4,000. The difference is huge by any respect. Many economists measure the GDP in terms of Purchasing Power Parity (PPP) as that reflects true buying power of the currency in the respective countries. This could be the reason for many to believe that Chinese economy is bigger than that of U. S; however, the author dismisses even this argument stating that after adjusting for purchasing power of the Chinese currency, the GDP of China is calculated as $10 trillion in 2010.

This is still lesser by $5 trillion when compared with U. S economy. The Main Conclusions Current American economy is much bigger than Chinese economy. The Chinese economy may surpass U. S economy by 2025 or before. Chinese growth rate will slow down in a decade or so for the reason of ageing population after 2035 and due to lesser natural resources.

Key Concepts Key concepts in this article are GDP, Purchasing power parity and unemployment rate. GDP is a measure of the size of the economy for any country. This is a sum of income of all the citizens within the country. Purchasing power parity is an important concept to equate the economy of two countries. It measures the purchasing power of the currency in the respective countries. For example, currency exchange rate is 1dollar=6.35 Yuan; however, for equivalent goods of basket, what an average American can buy in 1 dollar that can be purchased by an average Chinese in around 3 Yuan.

Thus, Chinese GDP from PPP point of view inflates from $5 trillion to almost $10 trillion. Main Assumptions Chinese figures with regard to the GDP and inflation are less precise. Currently the Chinese unemployment rate is more than 20 percent. By 2035, Twenty percent of the Chinese population will be age 65 or above. China is a resource scarce country. China is far more dependent on metals and grain. China’s natural resources are falling short of U. S.

The Main Point of View The main point of view of the author is that the American economy is still bigger than the Chinese economy and the difference is at least 2:1 in that order. Opinion I fully agree with the author’s viewpoint that the current American economy is much bigger than the Chinese economy because the GDP statistics from all the angles including the purchasing power point of view suggest so and also that the Chinese economy may surpass the U. S economy before 2025 at least from the purchasing power perspective. Reference Scissors, Derek (2011); U.S.

vs China: which economy is bigger, better? , Reuters, online November 16 2011, http: //blogs. reuters. com/india-expertzone/2011/04/15/u-s-vs-china-which-economy-is-bigger-better/

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