Appreciation of RMB

RMB

In China, imported inputs P, exports P in China In USA, P in USA

CPI = weighted averaged of prices of a basket of goods within the country. Demand Pull Inflation Cost Push Inflation Price AS = Labor, productivity

AD = C+I+G+(X-M) Y Output

Economic growth: As long as equilibrium(Y) increases. The biggest component in AD is consumption, roughly 70-80%. If you are in debt, it is likely that G will be huge. (X-M) is the consumption of imported goods, including imports. With appreciation, you will sell less and your X will fall, M will rise. (X-M) . Big countries usually trade less intensively. If theres inflation, appreciation will slow inflation down.

From 2005 to now the Chinese Yuan has been appreciated by 28%. Why is there no change in Chinas trade surplus? 1. Chinese goods are still the cheapest. 2. Chinese producers reduce price. 3. He didnt conclude!!!!

(X>M) RMB Should China let go of the peg (correction mechanism)? Chinese make shoes, whenever American buys Chinese shoes, they will need to buy RMB. Even if shoe manufacturer accepts USD, they will need to pay their other suppliers and workers in RMB, thus they have to buy RMB.

USD/RMB

RMB