Gdp Growth and Inflation in China

 GDP and Inflation in China and U.S.

--Differences in inflation between two countries and elementary analysis   

By

Wang Wenshan 41402042

Tang Cheng   41404116

Meng Shaohua 41402099

A Thesis

Submitted to Professor Chu

Southwestern University of Finance and Economics

Research Institute of Economics and Management

April , 2015

Contents

1. Introduction--------------------------------------------------------------------2

2. Data description---------------------------------------------------------------2

        2.1 The change in components of GDP--------------------------------------------------3

        2.2 Inflation level---------------------------------------------------------------------------5        

3. Analysis the relationship between the price index and economic      growth------------------------------------------------------------------------------6                  

        3.1 Several related theories that influence the price level and inflation-------------6

        3.2 Literary review on the connection between inflation rate and monetary growth---------------------------------------------------------------------------------------------7

        3.3 The inflation cycle in China: (classified by peaks and troughs) -----------------8

        3.4 Historical factors that affect the inflation cycle in China respectively----------8

        3.5 The circumstances in U.S. ----------------------------------------------------------11

4. Conclusion--------------------------------------------------------------------14

5. Reference----------------------------------------------------------------------16                                                  

6. Data Table---------------------------------------------------------------------17

GDP and Inflation in China and U.S.

--Differences in inflation between two countries and elementary analysis

Research Institute of Economics and Management

Class Time：Friday 1-3

Group Member

Wan Wenshan 41402042

Tang Cheng   41404116

Meng Shaohua 41402099

【Abstract】Given these figures in macroeconomics, we first analysis basic information we found and then move forward to three main phenomenon that rises our interest, while we mainly focus on the last item. The first one is we found that the components of consumption in two countries are widely different and we analysis the reason; we also found the relationship in GDP and inflation in China. We used a linear correlation to analysis the consistency in both countries. We wondered whether there is a clear cycle of inflation in both countries and we collected factors that possibly influent the results.

【Key Words】Gross domestic product(GDP); Inflation; Price index; Economic growth; Monetary growth; Inflation cycle;

1. Introduction

The macroeconomics is always the heated topic due to its close relationship with living conditions of the residents. The previous economists have proved to us the inflation rate, the growth of gross domestic product, the composition of gross domestic products and the deflator are of significance to our society. However, there are always arguments about whether one factor will influence another and how to evaluate the effect. Therefore, we tried to analysis the coefficient between both inflation rate and economic growth, also evaluate that whether there is an inflation circle in both America and China.

2. Data description

        Judging from the numbers we calculated between the two countries, there are several aspects that attract our attention: the different ratio of GDP that consumption takes part of; the fluctuation of inflation rate under distinct government policies in different periods; the co efficiency between the level of price and the level of gross domestic product.

        Besides, according to the data, the net export proportion of GDP reached the highest point from 2006 to 2008. This peak is attributed to the depressed export ability before 2008, and after that it reached a rather high level, China is at a stage to transform from first two industries to the third industries. China also has an incentive to break the barriers as a former labor intensive export-oriented economy.

        2.1 The change in components of GDP [pic 1]

[pic 2]

[pic 3][pic 4]

        The ratio that consumption composed of is widely different between America and China. America has a smoother upward curve, increasing from 60.51 % (1978) to 68.49% (2014). However, China has a rather dynamic trend during the period. It remained around 50% between 1978 and 1989, and then continued to decrease to around 35% in recent ten years. The huge gap between the two countries has abundant reasons.

        There are systematically two aspects to explain this phenomenon: the first one is depend on the income level of the residents, while the other one is consumer concerns that whether they are guaranteed by a social system.

        The income level of our residents is determined by both labor cost and the distribution of income.

        Also, people’s financial behaviors are closely related to their forecast of future economic environment. If a person is guaranteed with high pension security, they would more likely to purchase goods currently. But in today’s China, the pension system and public services are not developed enough as welfare states like America and European countries. These countries have a more established system of social securities with higher subsidies in distribution proportion.