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Inflation In China Essay

842 Words4 Pages

China has faced inflation and deflation. Particularly, inflation had bring out many effect on China citizen, such as income gap between the poor and the rich, rises in cost of living, and income gap between the rural and city residents.

First, the common effect of inflation is the cost of living increases. As a retirees, households, and the people who depend on social security benefits, there are always make the best decision, since they only have fixed incomes. When inflation occurred, the purchase power of RMB will fall and these group are stand to lose on their great deal, which mean that these kind of people will not be able to purchase the same as before. This will directly make the demand for higher wages. Nonetheless, only those with strong bargaining positions will be able to bid up for drive up wages. In addition, …show more content…

When there is inflation, the currency of China fell, the interest rate was lowed, and the investment revenues have more than the inflation rate. This situation encourages people to spend their money rather than save or hold wealth in the form of money as the value of savings have become down and down and the value of the investments in physical assets are more noticeable. Nonetheless, in the certain extent, the investments in some fixed income products, liked bonds devalued along with inflation. Therefore, people were more willing to use their money on purchase hedging products such as gold or real estates. As a result, savings from the society dropped and it then affect the economic capital formation. Furthermore, financial institution charged high interest rate on loan to investors. Because of the high interest rate charged on loan, so the cost of loan will increase and this cause the investor no interested in investing at China. After that, this effects on the development of the productive sectors, the output of China become less and in turn affect in economic

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