1) Consider the following news article and answer the questions that follow.Indiaâ??s GDP is expecte

1) Consider
the following news article and answer the questions that follow.India’s GDP is
expected to grow by 8.5% this year, and could grow even faster.ChetanAhya and
Tanvee Gupta of Morgan Stanley, an investment bank, predictthat India’s growth
will start to outpace China’s within three to five years. Chinawill rumble
along at 8% rather than double digits; India will rack up successiveyears of
9-10%. For the next 20-25 years, India will grow faster than any otherlarge
country, they expect. Other long-range forecasters paint a similar picture.
(10) Provide two factors that lie behind such an
optimistic forecast forthe Indian economy.
(10) Provide two factors that could jeopardize
such a scenario.

A recent article in The Economist characterizes
India’s brand of capitalism as “individualistic†and “bottom-up†and China’s as
“state-directed†and “topdown.â€

(20) Both India and China are relatively poor
countries striving to get rich. Which approach delivers faster growth? Which is
more robust? Explain your arguments clearly and precisely.
Consider the following news article and answer
the questions that follow. New data from the World Bank show that the
proportion of industrial production by companies controlled by the Chinese
state edged up last year, checking a slow but seemingly inevitable eclipse.
Moreover, investment by state controlled companies skyrocketed, driven by
hundreds of billions of dollars of government spending and state bank lending
to combat the global financial crisis. State-owned firms compete in the
airline, telecom and energy industries, among others.
(10) Provide an economic argument against
state-ownership and control of enterprises. Provide an economic rationale in
favor of government support of such state-owned enterprises in a developing
country such as China?
(10) What impact does increased government
support for state-owned enterprises have on the functioning of the Chinese

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Consider the following news article and answer
the questions that follow. SHANGHAI — China said Wednesday that its exports
continued to surge in September and that the nation’s foreign exchange reserves
ballooned last month, data that is likely to keep pressure on Beijing to
appreciate its currency. The government said its monthly trade surplus reached
$16.9 billion in September, with exports up 25 percent and imports climbing 24
percent. The surplus narrowed from August, when it had reached $20 billion, but
it was still an enormous figure, analysts said. Also Wednesday, Beijing said
its foreign exchange reserves soared $194 billion in September to a record
$2.65 trillion, far more than economists had forecast. China already had, by
far, the world’s largest currency reserve holdings. The gains show that China’s
fast-growing economy is chugging along and that huge amounts of foreign capital
continue to flow into the country, complicating Beijing’s economic policies and
threatening to feed inflation and asset bubbles.
(10) What accounts for China’s huge trade
surplus? What accounts for China’s soaring foreign exchange reserves?
(10) Explain how the U.S. economy has benefited
from the Chinese trade surplus and foreign exchange reserves.
Consider the following news article and answer
the questions that follow. City leaders, cheered on by aggressive developers,
had hoped to turn Ordos into a Chinese version of Dubai — transforming vast
plots of the arid, Mongolian steppe into a thriving metropolis. They even
invested over $1 billion in their visionary project. But four years after the
city government was transplanted to Kangbashi, and with tens of thousands of
houses and dozens of office buildings now completed, the 12-square-mile area
has been derided in the state-run newspaper China Daily as a “ghost townâ€
monument to excess and misplaced optimism. As China’s roaring economy fuels a
wild construction boom around the country, critics cite places like Kangbashi
as proof of a speculative real estate bubble they warn will eventually pop —
sending shock waves through the banking system of a country that for the last
two years has been the prime engine of global growth.
(10) Interest rates are relatively high in
China, so it is fair to say that the Chinese real-estate bubble is not fueled
primarily by low interest rates. Provide an alternative explanation for the speculative
real estate bubble in China.

In 1958, under Mao Zedong’s leadership, China
embarked upon a program called the “Great Leap Forward.†Land was reclaimed
from peasants and granted to rural communes, which were directed to increase
agricultural production and establish an industrial base in the countryside
with a special emphasis on steel production. However, it soon became apparent
that this program was a disaster. By 1962 GDP had fallen by 25% and more than
20 million Chinese died from starvation in history’s worst famine.
(10) Briefly explain the economic logic behind
why the “Great Leap Forward†was bound to be a disaster for both agriculture
and industry.


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