4.According to the IMF, China's economic growth slowed to 6.9 percent in 2015 and is forecast to moderate to 6.5 percent in 2016 and to 6.2 percent in 2017 as the economy rebalances the shift away from manufacturing and investment to services and consumption. The fund also forecast a decline in the growth of US GDP in 2016 due to a weak energy sector, a strong dollar, and turmoil overseas. Citigroup estimates that each 1 percent drop in the US economy will shave 1.3 percent off China's growth, because Americans are heavy users of Chinese products.

(10 marks)

a.Use the expenditure approach for calculating China's GDP to explain why each 1 percent drop in the US economy will shave 1.3 percent off China's growth.

(5 marks)

b.Why might China's recent GDP growth rates overstate the actual increase in the level of production taking place in China?

(2.5 marks)

c.Explain the complications involved with attempting to compare the economic welfare in China and the United States by using the GDP for each country. (2.5 marks)