Question

China had special economic zones originally in places such as Hong Kong and Shenzhen set up back in the 1980s. Why would the Chinese government support these areas with different rules like no tax on trade or different economic laws?

To increase the number of programs where national taxes can be excised.

To contribute to economic health and growth by keeping more money in government.

To facilitate a healthy economic environment and grow international trade.

In order for there to be an accurate reflection of the aggregate economic indicators in a model the equilibrium aggregate real GDP and the equilibrium aggregate price level needs to

be considered in individual markets.

only use long run curves.

intersect.

What is the one of the reasons low inflation may actually assist labor markets adjust towards equilibrium?

Low inflation increases the living standard of workers by diminishing their fixed debt.

Low inflation forces more frequent renegotiation of labor contracts.

Low inflation allows for the gradual downward adjustment of real wages.

Answer 1

For the first question, third option is correct. Setting up Special Economic Zones helps boost exports, generate employment and earn foreign exchange. These areas are provides with Tax incentives, reduced tariffs on imports, liberal regulations etc.

Both aggregate price level and real GDP should be considered for individual markets. that way we can understand the position of each market and the economic indicators thus generated would reflect more accurately the correct picture.

Low inflation leads to lower inflationary expectations and thus not only the contracts could be made for long term without periodic renegotiation, but also leads to downward adjustment of real wage as both the the aggregate price level expectations and the actual aggregate price level are low. Hence, money wage increase would also be lower.

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