Introduction to Economics AAF010-1: Analysis of China's Economy

This essay provides an analysis of economic activity, particularly focusing on how a nation's income and cost of living are measured. It relates economic theories to real-world events, specifically examining the impact of the COVID-19 pandemic on China's economy. The essay discusses Keynesian economic theory and monetarist theory in the context of China's economic challenges, including unemployment and inflation, and evaluates the economic policies implemented to address these issues. Furthermore, it presents economic data to assess China's economic performance, highlighting the rebound driven by investments and global demand. The essay concludes by emphasizing the importance of effective measures and policies in controlling the pandemic and stimulating the economy.

Introduction to
Economics,
AAF010-1

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Explanation of distinct measures related to economic activity, particularly of how nation’s
income along with cost of living are measured...........................................................................1
Relation of element of theory with everyday actual events addition to explaining the ways
economic policies intend to tackle potential problems................................................................3
Explanation of a topic in both macroeconomics through concise and clear argument on the
basis of logic together with underlying theory............................................................................5
Presentation of economic data in process to assess economic performance of a country...........5
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Economics could be termed to a social science associated to production, distribution as well
as consumption of commodities and services. Building blocks of economics refers to study of
trade and labour (Price and Adu, 2021). It studies the ways in which people, organisations,
governments and countries devise choices to allocate resources. Coronavirus pandemic has
negatively impacted economy of various nations. For instance, the pandemic has impacted
largely disruptive to economy of China in terms of economic practices and loss of human lives.
All sectors or markets have been negatively affected as exports and domestic demand sharply
plummeted with certain kinds of notable exceptions in which high growth were seen.
The essay explains the ways in which Covid-19 impacted on economy of a country. For this,
various measures of economic activity are explained. Moreover, the essay defines how economic
policies intend to deal with problems. At last, it presents economic data to assess nation’s
economic performance.
MAIN BODY
Explanation of distinct measures related to economic activity, particularly of how nation’s
income along with cost of living are measured
Economic activity refers to an activity for making purchasing, providing and selling goods
and services in order to satisfy daily needs related to life of people. In other terms, any activities
which deals with utilising, manufacturing and distributing commodities or services in a market
are economic activities. In a nation, economists as well as statisticians opts diverse methods for
tracking economic growth or measuring economic activity. As per He (2020), economy of China
shrank for first time in decades due to coronavirus pandemic and the road for recovery will likely
to be long (He, 2020). In an economy, cost and living and national income are key practices.
Below is explanation of certain economic activities and ways to measure them:
National income: It refers to flow of goods along with services that are manufactured or
produced within an economy in specific time period or year. It is value of aggregate outputs of
distinct sectors in certain period of time. For an economy, national income is an activity that
indicates economic status as well as provide clear picture about economic growth (Hakim,
Muslikhati and Aprilianto, 2020). Data of national income assists government to compare
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standards of living within countries along with people living in same nation at distinct time. In
context to China or other, measurement of nation’s income is done through mentioned methods;
Product method: With product method, national income is measured by adding values of
output produced and services rendered in distinct sectors during a year. For instance, calculation
of income of China is possible through including only values that are added by each organisation
in process of production in output figure. In this essence, value added method is used that
comprises value added output of all sectors of economy at factor cost.
Income method: It refers to adding all incomes generated from employment addition to
ownership of assets prior taxation received from all activities of production within an economy.
In context to measure national income of China, economists require to add trading surplus of
public sector companies along with undistributed profits of private sector corporations. Rent
from land, compensation for labour, interest on capital, profits by companies and mixed income
are added for measuring national income (Phelan, Katz and Gostin, 2020). In this, products
which are not occurring from productive practices including interest on national debt, sickness
benefits and so on are excluded while measuring national income through income method.
Expenditure method: It measures total domestic expenditure with nation’s economy.
Expenditure method comprises two elements, that are investment expenditure and consumption
expenditure. In this, consumption expenditure entails consumption of products and services of
household. It includes expenditure of government on goods for meeting social welfare needs. At
same time, investment expenditure encompasses acquiring valuables. To measure national
income of China, statisticians add household consumption, investment expenses, net exports and
government expenditure in a particular year.
Cost of living: It is defined to measure of money it costs to live fairly average quality of
life. In other terms, it is the measurement which is based on amount of financial resources
require to cover everyday expenses (Koshle, Kaur and Basista, 2020). One of method to measure
cost of living is consumer price index which examines weighted average of prices of a basket
related to consumer products and services including food, medical care, transportation and many
more.
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Figure 1: Cost of Living in China. 2021
(Source: Cost of Living in China. 2021)
From the graph, it is determined that cost of living in China is overall cheap. It is because
costs of food and daily essential are relatively low in comparison to western countries. As per
consumer price index, it is measured that cost of living in China is around $ 693 that is around
1.06 times less expensive than world average (Cost of Living in China, 2021). Average salary
after taxation in the country is nearby $ 837 that is enough to meet living expenses for almost 1.2
months.
Relation of element of theory with everyday actual events addition to explaining the ways
economic policies intend to tackle potential problems
Keynesian economic theory which states total spending within an economy or aggregate
demand along with effects on inflation, output and employment. The theory advocates for
enhancement of government expenditure along with lower taxes for the purpose of stimulating
demand addition to pulling global economy from depression (Zhang, Gong and Yin, 2020).
China had world’s second largest economy that shrank to 6.8% in first quarter of 2020 against
past year. It is slightly worse than analysts were expecting, as well as amounts to nearby 693
billion yuan ($98 billion) in loss results. Because of coronavirus pandemic, actual event that is
becoming top priority is unemployment as the economic slowdown has taken toll on jobs. The
country acknowledged record employment in the pandemic that suggests that the nation knows it
has issue on its hands. Job losses that were caused by the pandemic weighed on spending of
consumers which resulted in another issue for the nation which was dealing with cooling
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domestic demand. Within China, per capital income declined by almost 4% which plunge around
12.5% consumer spending.
To tackle issue of unemployment, Chinese government has devised and implemented
specific policies for the purpose of stimulating creation of job. Within the nation, government
has taken initiation ranging from encouraging online job searches to providing loans for
businesses so to maintain or keep their payroll, from expanding graduate programs in order to
absorb college graduates for recruiting students of college to rural areas, from declining
employment based fees along with taxation to provide huge training and education (Liu and Et.
Al., 2020). All these policies play significant function in job ease market frictions. At same time,
local government are providing incentives as well as loans to ventures for expanding payroll. For
instance, government of Wuhan City offers businesses a 1,000 Renminbi ($140) incentive for
each graduate that are hired by them.
Another actual event that occurred due to coronavirus pandemic is inflation as Chinese
inflation fears rising because of increasing commodity prices. With this, producer price inflation
has increased, while consumer price inflation is decreasing as economy of China has not fully
picked speed subsequently to coronavirus pandemic.
Figure 2: China’s inflation rate. 2021
(Source: China’s inflation rate. 2021)
The above graph shows that China’s annual inflation rate after Covid-19 edged down to
1.0% in 2021 from 1.1% earlier year (China’s Inflation Rate. 2021). It is lowest reading since
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April and amid towards steeper decline in cost of food with pork prices declining quickly. For
the purpose of tackling the event of inflation, government of China has adopted “Basically Under
Control” and monetary policy to keep situation steady. The government adhere to policy stability
as priority along with stick towards executing normal monetary policy. With this, government of
China has kept interest rates at proper level with the aim of conducive stable as well as healthy
developments of the market.
Explanation of a topic in both macroeconomics through concise and clear argument on the basis
of logic together with underlying theory
Macroeconomics studies the ways in which an overall economy including market and other
systems operate on large scale behaves. It attempts for measuring performance of an economy,
understanding forces that drive it as well as project ways to improve performance (Seccareccia
and Rochon, 2020). Shrank of economy of China for first time in decades has reported economic
contraction and ended a decade of social as well as economic tumult. The three major growth
engines of China including exports, consumer spending together with fixed assets investment
sputtered as large swaths of nation. Because of it, retail spending in the nation dropped at 19%
while exports plunged around 13% and final asset investment reduced to 16%. It is argued that
shrank of economy have clearly effected supply and demand of products.
Monetarist theory is a macroeconomic theory that argues that government can foster
economic stability through targeting rate of growth of money supply. It views total amount of
money within the economy is key determinant of economic growth. In aspect to China’s
shrinkage economy, it is analysed that China’s economy is expected to reach 8.5 per cent in
2023with pre Covid-trend growth. As recovery of China’s economy becomes more entrenched,
structure of aggregate demand is predicted to rotate towards demand of private domestic
products (Zhao, Shou and Wang, 2020). Unless inflation moves well than desired rate and
expectation becomes anchored, use of Monetarist theory proceed cautiously.
Presentation of economic data in process to assess economic performance of a country
Economic data is also known as economic statistics which include quantitative measures
that elaborates actual position of an economy. It reveals true image of present condition of an
economy. Moreover, economists use the data for understanding the ways an economy stands in
aspect to other economies together with whether it has been governed effectively or not.
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Figure 3: China's Economic Condition. 2021
(Source: China's Economic Condition. 2021)
From the statistical data, it is analysed that China’s economy rebound is driven through
combination of factors that are massive investments in sectors that is boosted by powerful global
demand of supplies along with steady pick up in domestic consumption after long duration of
sluggish growth. On comparison with weak base in the year 2020, China’s economic growth in
2021 has reached around 8 to 9 per cent (China's Economic Condition, 2021). With this, it can be
said that China’s economic performance is improving because of effective measures and policies
that are undertaken by government to control pandemic together with stimulate economy.
The nation has observed resilient momentum in indicators of economy that are coming from
consumption and production side. In 2022, China is expected to expand the economy by creating
around 11 million new urban occupations along with expand domestic demand as well as
effective investment so to put it firmly back to pre-pandemic vibrancy. More than this, China
pursue towards high quality development, consolidate addition to expand achievements and
advance supply-side reform (Mionel, Neguț and Mionel, 2020). While solidifying foundation of
recovery so to keep economy in proper range, China called for consideration to imported
inflation carried by rises in prices of international products, stressing efforts for keeping basically
stable for the purpose of preparing possible risks at domestic and global level.
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CONCLUSION
From the presented essay, it is concluded that economics is described to a science that
studies behaviour of human as relationship among ends as well as scare that means having
alternative usage. To measure economic activity, key methods are product method, expenditure
method and income method for national income. Initial outbreak of Covid-19 pandemic has
resulted in intense along with sharp decline of exports of Chinese commodities and breakage of
value chains. At macroeconomic level, Covid-19 wreaks negative impact on economy of China.
At same time, national level simulation reflects remarkable disparity within various pandemic
scenarios in divisional level of labour and GVC participation for China as well as its trade
partners.
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REFERENCES
Books and Journals:
Hakim, R., Muslikhati, M. and Aprilianto, F., 2020. Islamic Economics Ethics Perspective on
Economic Development in the Time of Coronavirus Disease (Covid-19). Falah: Jurnal
Ekonomi Syariah. 5(2). pp.111-127.
Koshle, H., Kaur, R. and Basista, R., 2020. Breakdown of business and workers in India: impact
of corona virus. Available at SSRN 3557544.
Liu, K. J. and Et. Al., 2020. A time delay dynamic model with external source and the estimation
of reproductive number for the outbreak of novel coronavirus pneumonia. Kongzhi Lilun
Yu Yingyong/Control Theory and Applications. 37(3).
Mionel, V., Neguț, S. and Mionel, O., 2020. Pandemopolitics. How a public health problem
become a geopolitical and geoeconomic issue. Eurasian Geography and
Economics. 61(4-5). pp.389-403.
Phelan, A. L., Katz, R. and Gostin, L. O., 2020. The novel coronavirus originating in Wuhan,
China: challenges for global health governance. Jama. 323(8). pp.709-710.
Price, G. N. and Adu, D. P., 2021. Was trade openness with China an initial driver of cross-
country human coronavirus infections?. Journal of Economic Studies.
Seccareccia, M. and Rochon, L. P., 2020. What Have We Learned from the COVID-19 Crisis?
Domestic and International Dimensions and Policy Options for a Post-Coronavirus
World: Introduction. International Journal of Political Economy. 49(4). pp.261-264.
Zhang, Y. F., Gong, J. W. and Yin, M., 2020. Influences and response measures of COVID-19
epidemic on shipping and port industry in China. Jiaotong Yunshu Gongcheng
Xuebao/Journal of Traffic and Transportation Engineering. 20(3). pp.1671-1637.
Zhao, Y. F., Shou, M. H. and Wang, Z. X., 2020. Prediction of the number of patients infected
with COVID-19 based on rolling grey Verhulst models. International Journal of
Environmental Research and Public Health, 17(12), p.4582.
Online:
China’s inflation rate. 2021. [Online]. Available through:
https://tradingeconomics.com/china/inflation-cpi
China's Economic Condition. 2021. [Online]. Available through: <https://www.china-
briefing.com/news/china-2021-economic-outlook-foreign-investor-expectations/>
Cost of Living in China. 2021. [Online]. Available through: < http://www.gi2c.org/cost-of-
living-in-china.html>
He. L. 2020. China's economy just shrank for the first time in decades. It could still eke out
growth this year. [Online]. Available through:
https://edition.cnn.com/2020/04/16/economy/china-economy-gdp/index.html
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